economic empowerment research paper

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• Published: 07 April 2023

Barriers and interventions on the way to empower women through financial inclusion: a 2 decades systematic review (2000–2020)

• Omika Bhalla Saluja   ORCID: orcid.org/0000-0001-9831-1947 1 ,
• Priyanka Singh 1 &
• Harit Kumar 1  

Humanities and Social Sciences Communications volume  10 , Article number:  148 ( 2023 ) Cite this article

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• Development studies

This study aims to reduce ambiguity in theoretical and empirical underpinning by synthesizing various knowledge concepts through a systematic review of barriers and interventions to promote the financial inclusion of women. The surrounding literature is vast, complex, and difficult to comprehend, necessitating frequent reviews. However, due to the sheer size of the literature, such reviews are generally fragmented focusing only on the factors causing the financial exclusion of women while ignoring the interventions that have been discussed all along. Filling up this gap, this study attempts to provide a bird’s-view to systematically connect all the factors as well as mediations found in past studies with the present and future. PRISMA approach has been used to explain various inclusions and exclusions extracted from Scopus & WOS databases with the backward and forward searches of important studies. Collaborative peer review selection with a qualitative synthesis of results is used to explain various barriers and interventions in financial inclusion that affected women’s empowerment in the period 2000–2020. Out of 1740 records identified, 67 studies are found eligible based on systematic screening for detailed investigation. This study has identified patriarchy structures, psychological factors, low income/wages, low financial literacy, low financial accessibility and ethnicity as six prominent barriers and government & corporate programs/policies, microfinance, formal saving accounts & services, cash & asset transfer, self-help groups, and digital inclusion as six leading interventions to summarize the literature and highlight its gaps.

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Introduction.

All over the world, women bear an inadequate load of poverty because of social and structural hurdles. A long-dated body of literature (Klasen, 1999 ; Dollar and Gatti, 1999 ; Klasen and Lamanna, 2009 ; Seguino, 2010 ) emphasizes the effect of numerous facets of gender inequality and economic growth. Females are found to be less educated, less paid, less on ownership and able to exercise much less economic control than their male counterparts. This discrimination, especially in education, hampers their financial development, leading to income inequality (Gonzales et al., 2015 ). Consequently, women suffer from lack of health, education, work opportunities and control over their own lives and selections (Kabeer, 1999 )

Nevertheless, we are observing a critical drive to achieve gender equality, with 193 United Nations member countries committing to achieving the sustainable development goal (SDG 5) of ending gender inequality issues by 2030. Realizing that women’s empowerment benefits not only women but also the sustainable development of the community (Vithanagama, 2016 ), numerous banks all over the world, such as Westpac in Australia, ICICI and SBI in India, Natwest in the UK, and UNITAR in Kenya, have developed products and services designed especially for women, keeping in mind their security, accessibility and affordability. To make the most of this, we need more extensive literature exploration to enable conceptually strong evidence-based solutions catalyzing women’s mobility from poverty and exploitation. Considering the vastness of literature, this can only be addressed by a scientific approach to review, which has been followed in the present study. However, due to the sheer size of the related literature, previous reviews (Holloway et al., 2017 , Kalaitzi et al., 2017 , Roy and Patro, 2022 ) are found to be fragmented as their results focused only on the factors causing the financial exclusion of women while ignoring the interventions that have been discussed all along.

Therefore, filling up this gap our review paper aims to scientifically identifying and amalgamating the related studies between 2000 and 2020 with the objective of (a) identifying the nature of major barriers, (b) exploring the most useful mediations/interventions and trends in research on the financial inclusion (FI) of women to enable the community to design thoughtful interventions for them.

The economic empowerment of women was explored in various dimensions at a much greater pace after 2000 (Priya et al., 2021 ). This inspired us to focus on the research work and other initiatives taken in the following 2 decades, defining our study period 2000–2020. Many influential articles have been published in journals dedicated to women and general development, such as World Development Footnote 1 , Feminist Economics Footnote 2 , Journal of Development Economics Footnote 3 and Gender & Development Footnote 4 . However, despite tremendous progress in the global state of FI, the gap in gender has not changed much since 2011, as a 6% difference still exists in access to Bank accounts among men and women in developing countries (Demirguc-Kunt et al., 2022 ), raising the need for considerate customized mediation.

Early studies on financial empowerment of women

Professor Irene Tinker’s work in women studies in the 1960s and 70s is the foundation for research on women development studies. Her work was instrumental in bringing about the first United Nations International conference on Women in 1975, which is also marked as International women’s year. She also founded the International Centre for Research on Women in 1976, which promotes empirical research to advocate evidence-based ways to empower women and promote gender equality.

Research in the 1970s was characterized by pioneer studies that highlighted the role of women in economic development (Boserup, 1970 ; Tinker, 1976 ), while the 1980s captured the role of females in family structures (Acharya and Bennett, 1981 ), the hardships faced by women in agriculture, which was identified as the single most important employment-generating sector for women (Staudt and Jaquette, 1982 ), and the advancement of land rights for women (Agarwal, 1988 ).

In the 1990s, research gathered pace with numerous studies about the persisting gender inequalities (Tinker, 1990 , 1999 ; Sen, 1990 ; Buvinić and Gupta, 1994 ; Mehra, 1997 , Mayoux, 1998 ; Pande, 1999 ) in cooperatives (Sen, 1990 ), financial services and microlevel entrepreneurship (Mehra and Gammage, 1999 ), and discriminations in agriculture and land rights of women to bring about sustainable development and suggest inclusive policies and practices (Mehra, 1995 ). Providing a much need direction and empirical advancement, Kabeer, 1999 proposed the measurement of women’s empowerment with the identification of the ‘resources’ they own, the ‘agency’ or commanding role they have and their ‘achievement’, which can be understood as the outcome in terms of well-being as the basic constructs to be observed. This is one of the most cited articles in the context of studies about the economic empowerment of women. By the end of the decade, the World Bank’s research report presented a cross-country comparison of the impact of gender inequalities on growth and development (Klasen, 1999 ), thus introducing crucial insights into the geographical diversity of the issue.

Thus, the literature around the financial empowerment of women began with recognizing the crucial role of women in the commercial progress at macro level then; it started to realize their critical role at family level and nature of their contribution at social level, which highlighted gender inequalities. Various dimensions in which such discrimination existed were identified giving scope to future researchers to explore various barriers in the way of women development and to develop suitable policy interventions.

Research methodology

Systematic reviews must follow the preset protocol, which is an advance plan of action specifying the methods to be used in the study and is generally accepted as a research design in social science studies. These rules are crucial to avoid researcher bias in data selection and analysis and increase the reliability of reviews (Xiao and Watson, 2019 ).

In this section, we have described systematic steps undertaken to extract data using specific channels, keywords, inclusion & exclusion criteria and expert selection explained through the PRISMA framework (Fig. 1 ).

Our initial result of 1734 documents (results as on 30 January 2022) was filtered by including only peer reviewed open access, full text English articles on Financial inclusion and women empowerment, resulting in 67 eligible documents. (author created).

Further, the studies thus extracted have been classified and synthesized qualitatively for deeper insights.

Channel used for literature search

Literature for this review has been found using the two sources suggested by Xio and Watson in 2019. These sources are:

Electronic database —Web of Science (WOS) and Scopus. WOS has the longest indexing coverage from 1900 to the present (Li et al., ( 2010 ) while Scopus has an extensive coverage of good quality academic work (Gavel and Iselid, 2008 ). A literature search using both databases despite the overlapping articles is still recommended to avoid missing out high-impact documents (Vieira and Gomes, 2009 ). Extractions from Scopus and WOS for this study were made on January 30, 22.

Backwards and forward search —Articles cited in important studies (highly cited) were traced to identify the inspiration and key background variables, likewise the articles that cited important studies were explored to determine the direction of the flow of research. (Webster and Watson, 2002 ; Haddaway et al., 2022 ). Also, publications by key authors (highly cited) who contributed to the pool of knowledge were identified to ensure that all their important studies were included.

Concepts from the search statement were extended by synonyms, abbreviations, verb forms and related terms to select keywords (Rowley and Slack, 2004 ), as shown in the Table 1 below:

To capture the essence of the study’s research objectives, a dive was made into the Web of Science and Scopus data extracting 751 and 983 records, respectively, based on identified keywords.

PRISMA approach

Data pulled out were filtered using Preferred Reporting Items for Systematic Reviews and Meta-Analyses—PRISMA (Fig. 1 ), that explains initial screening, determining parameters for inclusion and exclusion and outlining work limitations (Stovold et al., 2014 ; Selçuk, 2019 ).

Inclusion parameters

Publications from 2000–2020.

Open access articles.

Research areas: “Business management, social science, economics, econometrics, accounting and finance”

Exclusion parameters

Incomplete and non-English language publications.

Conference reviews, books, chapters, book reviews, conference papers, and surveys were excluded.

Articles in press.

Collaborative peer review-based exclusion

Expert selection and evaluation

After the electronic screening of records, a double screening was performed by all three authors, where all 89 studies were reviewed by each author individually. Later, 48 studies were screened out as they were not found to be measuring the population (vulnerable women) or outcomes (barriers and interventions) of interest, and 41 studies were finally selected. Additionally, 26 important and relevant studies, including 8 working papers, were identified through backwards and forward searches while reviewing the studies. The included working papers are listed in the Table 2 for reference. After the screening of the literature, a total of 67 articles were documented individually and classified and amalgamated in tables followed by a qualitative synthesis of these studies.

To achieve our research objectives, the selected articles were classified as barrier-related studies, experimental studies and studies evaluating interventions, with a few studies covering more than one dimension (Fig. 2 ).

Venn grouping of the selected studies on the basis of their evaluation of barriers or interventions and the nature of study being experimental or otherwise (author created).

Tabular synthesis

In Table 3 below, we have classified and connected 67 eligible articles based on their contribution to developing different perspectives about barriers and interventions in FI-based women empowerment.

Additionally, twenty-four experimental studies during 2000–2020 are presented in a tabular form (Table 4 ) for review. For the purpose of our study, only the gender-based findings are listed for each study. Owing to the high level of heterogeneity of quantitative data, we could not conduct a meta-analysis; instead, we summarized studies based on their characteristics, factors, mediations and results (Bohren et al., 2015 ).

Qualitative synthesis

The ideas forwarded through the tabular classifications in the studies of FI and WE have been knit to arrive at a thematic discussion about barriers, intervention-based studies and intervention types, which are the three main dimensions of our study.

Barriers to financial empowerment of women

Women have been suppressed and exploited physically, socially, mentally and economically for a long time. Developing countries particularly have a patriarchal set up where women are seen second to men (Nagindrappa and Radhika, 2013 ). While there is a section of society that encourages women empowerment, numerous barriers continue to restrict their advances.

Through our set of identified studies, we have presented below a discussion about various barriers that have been found through the discussion to be interlinked and often cyclical in nature. Figure 3 highlights the scope of our further discussion about the barriers to FI in women.

Six cyclic and interconnected barriers to the FI of women identified through an expert evaluation of selected studies (author created).

Patriarchy structures

Patriarchy is a socio-ideological concept in which men in the family (father, brother, husband, son, etc.) are considered to be superior to women. It is also described as a social arrangement in which men (patriarchs) dominate, oppress and exploit women (Walby, 1989 ).

Delving into the subject of patriarchy, noted author, Naila Kabeer, 2015 pointed to two types of inequities against women. First, gender mediated social class-based violence, rape and other sexual exploitation that women get subject to, and second, domestic violence due to scarcity or poverty and related helplessness of males within the household.

The abuse of women does not stem from scarcity or poverty; even affluent families exploit their daughters by denying them their land and property rights. The Indian government introduced a gender-progressive inheritance law to combat this injustice; despite the reforms, parents continued to deprive their daughters of their rights based on emotions and compensation in the form of higher education and higher dowries (Roy et al., 2015 ). This ill treatment of woman, which starts from her parental abode, continues in her husband’s house, where the ordered unequal power relations developed out of patriarchy further diminish her position. Her production, reproduction and sexuality are controlled by men. This biased treatment of women in the household adversely affects all levels of her social interactions, depriving her of access to resources and opportunities (Manta, 2019 ; Ghosh and Günther, 2018 ) and financial independence (Schaner, 2017 ).

Psychological factors

For obvious reasons, as discussed under the previous heading, many women lose self-confidence and self-esteem and perceive opportunities with fear of failure (Koellinger et al., 2008 ). An experimental study found that females in the lower income group tend to be more risk averse than their male counterparts and think about the negative consequences of not being able to pay back loans. (Manta, 2019 ) Thus, psychological factors must be carefully studied as crucial drivers of the FI of women (Kavita and Suman, 2019 ).

It was found that investment pattern, group experience and age impacted women’s perception about barriers to FI (Lombe et al., 2012 ), and attitude could be explained by personality traits, ability to cope-up, resource utilization, entrepreneurial abilities, organizational control, financial inclusion and economic betterment (Patil and Kokate, 2017 ).

Low income/wages

Although the concepts of income inequality and gender have been discussed separately in the literature, they cannot be compartmentalized, as they keep interacting by the way of inequality in outcomes and opportunities, which are a bye-product of inequalities mainly in education, financial access, social structures and individual perspectives.

With the biasness of patriarchy and her own fallen self-esteem, a woman’s low negotiation and bargaining power leads her to enter into the social contracts where she is able to earn a low level of income and wages compared to men for the same work. This discrimination is popularly referred to as the “glass ceiling” and is experienced by women at all levels of hierarchy. This reminds us of the much-discussed US presidential elections in 2016, where former U.S. Senator and Secretary of State Hillary Clinton was subject to misogynistic attacks indicating to her being too weak to serve the nation’s highest office. (Marie et al., 2017 ). Hence, women being exploited at work in terms of work treatment and low wages are no exception. At lower levels of education and power, gendered wage gaps are even more pronounced (Gonzales Martínez et al., 2020 ) and are found to further contribute to financial exclusion (Ghosh and Vinod, 2017 ) and further impede the economic growth of women.

Low financial literacy

With cyclical interconnections with all other barriers to the financial empowerment of women, financial literacy has been much discussed by researchers. Hung, A. et al, 2009 combined all previous definitions of financial literacy to express it as “knowledge of basic economic and financial concepts, as well as the ability to use that knowledge and other financial skills to manage financial resources effectively for a lifetime of financial well-being.” Successive studies have recognized financial awareness, financial knowledge, financial skills, financial attitude and financial behavior as key factors in determining financial literacy (Kumari and Azam, 2019 )

Financial literacy has been supported as one of the critical factors to bring about FI and has greater importance for increasing economic empowerment among women, especially the rural poor (Gonzales et al., 2015 ; Montanari and Bergh, 2019 ; Kumari and Azam, 2019 ; Kaur and Kapuria, 2020 ), who in the lack of it make wrong choices and become vulnerable to high financial risks (Manta, 2019 ). With a lack of financial knowledge and skills, women cannot access financial services and the benefits of the formal financial system, making them economically dependent on men and confined to the vicious circle of low investments, low income and low profits (Manta, 2019 ). Montanari and Bergh, 2019 found that the participation of women in the earnings and decision-making activities of rural cooperatives was almost nonexistent. It insisted that women’s roles in such institutions were restricted to low-cost or free physical labor, while those who benefited were literate and generally educated people.

Spatial diversity and related factors play an important role in the effective communication of financial literacy. Gendered gaps in education were found to be greatly related to the general variation in educational achievement across countries, signifying a shortage of access to education. (Gonzales et al., 2015 ).

A cross-regional comparison showed high-level gendered discrimination based on education level and economic participation in South Asia. Observations in Asian countries indicate lessening of the gendered employment gap with the rise in gendered education levels, while in the Middle East and North Africa (MENA), gender gaps in education have decreased, yet women have not obtained opportunities in employment (Klassen and Lamanna, 2009 ). This result hints at the presence of interwoven barriers that are passed on locally.

Overall, a high level of financial literacy is expected to result in greater economic participation of women, where she has an opportunity to express her thoughts and receive suggestions about investment avenues and updates about new profitable products and services, encouraging her towards group effort and informed financial behavior (Ingale and Paluri, 2020 ), which in turn improves her relative wealth (Doss et al., 2020 ) and empowers her.

Low financial accessibility

Access to bank accounts, savings instruments, and other financial amenities may result in women’s better control of their earnings, personal consumption and commercial expenditure (Bernasek, 2003 ), and lack of it pushes her back to obscurity. This was exemplified in an experimental study in Kenya that found that credit constraint prevented women from starting a business and savings constraint further barred them from sustaining it (Brudevold et al., 2017 ).

While trying to develop within the male dominant society, a woman is subject to biases that pull down her self-confidence hurling her into the loop of less education, low employment and low wages, denying her the benefits of access to formal finance such as credit, deposits, insurance, payments and other risk management services (Demirguc-Kunt et al., 2022 ). Findings in an Africa-based study indicate that access to formal finance is mainly driven by individual characteristics such as education, age, income, residence area, employment status, marital status, household size and degree of trust in financial institutions (Soumare et al., 2016 ). Most of the above factors have been identified as obstacles for the FI of women, thus emphasizing women’s overall lack of opportunity to access finance.

Women’s lack of access to financial products and services may also happen because of the absence of a bank branch in rural areas that are not commercially viable for banking. Marginalized women living in underdeveloped far-flung areas with poor infrastructure and roads find it hard to regularly visit bank branches in other areas (Manta, 2019 ), so they avoid banking altogether. This problem was addressed by Mueller et al. in 2020, who worked to develop a travel time model to indicate market accessibility, which is the summary travel time to the nearest state capital city in hours. Such indicators may help in planning inclusion strategies.

Another major reason for women’s lack of access to finance is the lack of commercial interest of banks in disbursing small credit to poor women with no credit history or collateral. Such lending may lead to the building up of non-performing assets and eventually high losses for banks. Therefore, they avoid giving loans to underprivileged women depriving them of economic opportunities. Moreover, the absence of collateral with women is further enhanced by biased traditional property rights (Manta, 2019 ), which denies her resources to build upon a better future.

Looking at the brighter side, ambitious efforts are being made through pathways such as microfinance (Kemp and Berkovitch, 2020 ) and digital inclusion to pull women out of these never-ending and self-building barriers.

In recent studies, ethnicity has emerged as an important factor to be considered while promoting FI in women. Gonzales Martínez et al. ( 2020 ) conducted a controlled laboratory experiment in Bolivia to evaluate whether credit officers in microfinance institutions rejected loan applications on the basis of the interaction of gender and ethnicity of potential buyers. Although the study supported that women were benefitting from microcredit, it indicated discrimination based on ethnicity, as nonindigenous women had twice the probability of getting loan approved, whereas indigenous women had only 1.5 times the probability of getting loan approved compared to men. This idea was supported by another contemporary study (Kaur and Kapuria, 2020 ), suggesting that households headed by females belonging to socially underprivileged backgrounds had a poorer likelihood of obtaining finance from institutions. This suggests that important insights for FI for women can be derived from ethnic studies.

Experimental studies on women’s financial empowerment

As the researchers identified various variables related to the financial empowerment of women through exploratory and descriptive studies, a number of empirical and experimental studies were undertaken to understand the relationship between them. The three main types of interventions identified during our analysis were as follows:

Economic interventions —Involving cash/asset transfer, free bank accounts, free services, subsidies

Social interventions —Comprising family counseling, life skill training, vocational training, awareness programs

Bundled Economic and Social Interventions

Mostly, field experiments measuring the long-term impact of interventions on women’s financial empowerment were conducted. Overall, economic interventions were found to be highly effective in reducing the economic vulnerability of women (Stark et al., 2018 ; Brudevold et al., 2017 ). However, Ismayilova et al., 2018 and Buehren et al., 2015 ) suggested that bundling up economic, social and psychological interventions could make them more constructive.

Interventions implemented for financial empowerment of women

Intervention studies have guided various programs and policies of governments that are essential to support, promote and scale up the literacy, access and growth of financial products and services for women’s empowerment. Realizing the fact that women’s empowerment benefits not only women but also the sustainable development of the community (Vithanagama, 2016 ), numerous banks all over the world, such as Westpac in Australia, ICICI and SBI in India, Natwest in the UK, and UNITAR in Kenya, have developed products and services designed especially for women, keeping in mind their security, accessibility and affordability. Figure 4 defines the scope of our further discussion about six successful interventions in the way of FI of women.

Six most important interventions in empowering women through FI identified through an expert evaluation of selected studies (author created).

Government/corporates programs and policies

The insights developed from the conclusive studies provided governments and public and private enterprises around the world to design suitable inclusive programs, schemes and policies to address the gender gap in finance. Interventions such as government-to-people transfers and the inclusion of post office financial services were evaluated by researchers to comprehend their success or failure in bringing about fairness for women. Swamy ( 2014 ) evaluated the Indian government’s inclusive plans, policies and programs by observing changes in income level, food security, living standards, production levels and asset creation to find that the FI initiatives had a much higher impact on women than on men. These results were cited in many successive studies and laid the groundwork for more intensive inclusive efforts in India.

While acknowledging the imperative need for women’s empowerment for nation building, governments and related organizations all over the world launched ambitious programs to support women. Strategies of the Green Morocco Plan (GMP) were explored by Montanari and Bergh ( 2019 ) to conclude towards the persisting miserable circumstances of women despite planned efforts.

Similar to the actions taken by the states, many private sector companies design schemes, products and programs to promote gender equality for the benefit of their women staff. A Turkish study (Gülsoy and Ustaba, 2019 ) investigated diversity management strategies of companies and found that company leadership played an important role in bringing about equality programs in the workplace. However, they also pointed to the profiteering motive of corporations, which could be served by associating with image building activities, higher productivity and innovation capability, which could result from greater employee satisfaction.

However, some studies claim that many such initiatives had failed because they did not fully anticipate the importance and influence of social institutions such as age, gender, ethnicity, literacy, race, background and religion towards building an enabling environment for inclusion (Gonzales Martínez et al., 2020 ; Kaur and Kapuria, 2020 ).

Microcredit/microfinance

Microfinance helps to bring about the financial independence of poor or exploited women by enabling them to participate in economic activities, improving their status in households and society and reinforcing their power to make decisions (Zhang and Posso, 2017 ; Lall et al., 2017 ). A strong correlation was found between the level of outreach of microfinance institutions and women’s empowerment (Laha and Kuri, 2014 ).

Zhang and Posso ( 2017 ) used case studies to support the constructive role of microfinance to reduce gender inequality. This idea was strengthened by the empirical diary data-based study (Elu et al., 2019 ) in Mozambique, Sub-Saharan Africa, which revealed that being a woman had a positive treatment effect on procuring microcredit. A longitudinal panel study (Khandker and Samad, 2014 ) comparing the effects of microcredit programs in Bangladesh showed that a 10% increase in borrowing by women lowered extreme poverty by 5% and increased the willingness to work of women by 0.46%.

The usefulness of microfinance, microcredit, and microenterprises to promote the empowerment of women has been widely studied (Karlan et al., 2007 ; Swamy, 2014 ; Laha and Kuri, 2014 ; Zhang and Posso, 2017 ), along with the impact of bundling them up with vocational trainings, education or counseling (Kim et al., 2007 ; Buehren et al., 2015 ; Karlan et al., 2007 ). It has been found that both economic and social empowerment programs together were effective in reducing IPV (Kim et al., 2007 ). One such intervention affirms that lifeskills and livelihood training along with microfinance resulted in the likelihood of higher earnings and consumption along with a reduction in teen pregnancy and early marriage (Buehren et al., 2015 ). Likewise, it was found that health knowledge along with microcredit could help in reducing health risks (Karlan et al., 2007 ).

On the other hand, the success of microfinance policy based on outreach was challenged with an argument that institutions and their policies had engaged in a residual rather than the relational understanding of poverty (Johnson, 2013 ). Similarly, it was also questioned by Gonzales et al. in 2020 by highlighting the regressive attitude and biasness of credit officers against indigenous women.

Formal accounts/services

Formal account ownership and its use have been established as an important indicator of FI, and with the support of several research experiments, it has been adopted as an important policy intervention in many countries. Worldwide, 55% of males have a formal account at a financial institution, whereas only 47% of women own or co-own such an account with a gloomier picture in developing countries where women are 28% less likely to have an account at a formal financial institution. (Demirguc-Kunt et al., 2022 ).

Bank accounts result in savings that lead to wealth creation, which is an identified determinant of FI. A study in Kenya found that women made use of savings account far more than men. It observed that there was a 45% increase in savings on business investments among women when commitment-saving bank accounts were opened along with a high fee on withdrawal (Dupas and Robinsion, 2013 ). However, in their successive study (Dupas et al., 2014 ), where instead of a compulsive intervention, the mediation was only to facilitate account opening, it was found that men saved more than women and were more frequent in making transactions.

Hence, the mere opening of bank accounts in the names of women will not ensure their inclusion in the financial mainstream, and their usage of the same over the long run is crucial development. An experimental study found that 22% of such mediated accounts were active in the short run, and only 7% were used in the third year. Many women claim that they use the formal account of someone else in their family so they do not need an account in their own name. In many cases, husbands hold access to the ATM card of their wife, hinting towards the family structures that deprive women of a sense of ownership, making her dependent on other family members in financial matters. (Schaner, 2017 ; Demirguc-Kunt et al., 2022 ).

On the brighter side, it was found that with the sense of ownership of wealth, women tend to appreciate themselves by spending on their personal needs, elevating their sense of self-worth. There was a 40% increase in women’s personal expenditure (Dupas and Robinsion, 2013 ) and an increase in education and health after the account opening (Prina, 2015 ). Additionally, the ATM cards issued along with bank accounts were found to be quite popular among married couples, as transactions increased up to 62% in the short run and 68% in the long run. It was found to enable wives to participate in joint financial decisions along with their husbands (Schaner, 2017 ). These results reflect the positive impact of free account opening and subsidized or free financial services on inclusion but also emphasize the need to ensure that the benefits reach out to the targeted vulnerable women and have long-term effects.

Cash/asset transfer program

CTs benefit women through financial well-being, economic security and emotional well-being, leading to a reduction in intimate partner violence and significant improvement in women’s status and relationships in the family. (Ismayilova et al., 2018 ; Buller et al., 2018 )

Studies have supported adding cognitive and emotive features such as training, counseling and coaching with economic strategies in policy interventions to empower women (Ismayilova et al., 2018 ; Brudevold et al., 2017 ). When CT intervention was compared with the one coupled with life skill training, it was found that sole cash transfers were more useful in increasing the income of women in the short run only, whereas the likelihood of employment could be increased with life skill training and CT bundled together (Brudevold et al., 2017 ). An interesting study to find the real beneficiaries of CT in the long run found that benefits were largely retained by women, as they had less pressure to share their income with their relatives on the pretext that their earning options were limited (Squires, 2018 ).

The impact of productive asset transfer (livestock) in the name of women was explored in an experimental setting in Bangladesh. It revealed that although women’s asset ownership increased significantly, the real beneficiaries were men instead of women (“fly paper effect”), male sole ownership in agriculture and land increased significantly after the intervention (Roy et al., 2015 ). This reaffirms the earlier made point about the way dowry benefits are reaped by the male members.

The usefulness of CT or asset transfer cannot be denied in the short run, where lack of cash or assets averts women from starting a business, but their limitation to save prevents them from sustaining the benefits in the long run (Brudevold et al., 2017 ).

Self-help groups (SHG), philanthropy, NGOs

SHGs are informal groups of rural women formed to socially and economically support each other with a sense of belongingness and responsibility among themselves. These groups foster FI along with the social empowerment of women. Members join the SHG mainly to obtain financial support to meet basic needs, especially in the case of emergency (Nagaraj and Sundaram, 2017 ).

Most SHG members are young in age, are less educated, have less income and lack any kind of previous experience in handling money. After their SHG experience, women have been found to be managing cash (Kabeer, 2011 ; Maclean, 2012 ; Ramachandar and Pelto, 2009 ), although some studies have found that even after SHG training, there was no impact on asset formation or income of participants (Deininger and Liu, 2013 ), women remained unsure and pressurized about their financial decisions, especially in the presence of a community member (Maclean, 2012 ; Ramachandar and Pelto, 2009 ).

It was found that when the members become old in the group, they start realizing their social responsibilities, which transforms their social participation and builds up their confidence in making decisions (Mehta et al., 2011 ), enabling them to fight against exploitation at the family or societal level.

Many philanthropists and NGOs have dedicated themselves to the cause of women’s empowerment. The BOMA project in Kenya, which works to achieve the UN sustainable development goals of poverty reduction, reducing gender inequality and mitigating the effects of climate change, has been instrumental in increasing income and savings (Tiwari et al., 2019 ). In 2019, Hendriks studied the logic and strategy of the functioning of one such philanthropic Bill & Melinda Gates foundation that aims to reduce the gender gap through FI, while in 2020, Kemp and Berkovitch worked to study feminist NGOs in Israel.

Digital inclusion

Gender was identified as a key variable in consumer readiness in adopting mobile payment services and strategizing market segmentation (Humbani and Wiese, 2018 ). Digital financial services have been discussed in papers as one of the most effective FI models (Arnold and Gammage, 2019 , Natile, 2019 ), promising greater privacy, confidentiality and control of women over their finances (Duflo, 2012 ). An influential African study by Efobi et al. in 2018 found a strong positive relationship between progressions in information technology through mobile & internet penetration and the participation of women in the economy.

With the advent of mobile banking, many women who cannot reach out to financial institutions have been linked to financial services and are more likely to save than men, even with limited amounts (Ouma et al., 2017 ), gaining greater flexibility to spend on household expenditures and child welfare measures (Duflo, 2012 ). In 2016, Suri and Jack found that Kenyan mobile money system M-PESA was able to lift 194,000 households, which was 2% of the total households, out of poverty, with a significant positive impact in female households driven by higher savings and better employment of women. Acknowledging its phenomenal reach, the drawbacks and efficiencies of mobile banking were discussed further to promote FI (Humbani and Wiese, 2018 ; Arnold and Gammage, 2019 ). Prospects of digitizing G2P payments were evaluated (Klapper and Singer, 2017 ) to find that with the backing of government, there could be a dramatic reduction in costs, higher efficiencies, transparency and greater acceptance of technology.

Deliberating imperfections, on the one hand, complex financial products and services are being launched every other day; on the other hand, almost 80% of women in low-income economies still earn their wages in cash (Klapper and Dutt, 2015 ). Inherent inequalities in financial access (Klapper and Dutt, 2015 ), innumeracy, illiteracy and unfamiliarity with technology (Tiwari et al., 2019 ) are barriers to women’s digital FI. Reiterating the above idea, the exploration of inclusionary arrangements found the exploitation of the M-PESA program to identify market opportunities causing its failure to adopt the redistributive measures necessary for the benefit of society (Natile, 2019 ). This suggests that there is a need for a very well-planned, systematic digital intervention with higher transparency, sensitivity and awareness.

Our systematic study seeks to explore its research objectives through three dimensions viz. barriers, intervention types and intervention/experimental studies (Fig. 2 ). The results obtained with regards to each dimension have been further discussed to present the contribution of our work.

Out of 67 related studies 24 studies provided us insights about the barriers in the way to financial Inclusion of women. A tabular synthesis of these studies resulted in the identification of six barriers, which were further qualitatively synthesized to find that they were interlinked and often cyclical in nature. We found that the study conducted for understanding one barrier led the way to explore other barrier. The long-term ill treatment of women due to patriarchy structures induce low self-esteem and other psychological barriers, which in turn reduce their negotiation power and more often than not they have to settle for low income and wages coupled with low literacy levels than their male counterparts. Low finances, economic power and low literacy directly affect their decision-making, leadership and opportunities. With fewer opportunities to grow, females get lesser access to finance and the women who have been underprivileged on account of their ethnicity face greater challenges in accessing finance their development. Lack of financial strength and literacy keeps pushing women into the patriarchy structures and hence the viscous cycle of disempowering women continues.

The results obtained from the tabular synthesis of 34 intervention studies, identified Government/Corporates programs and policies, Microcredit/Microfinance, Formal accounts/services, Cash/asset transfer program, Self-Help Groups (SHG), Philanthropy, NGOs and Digital Inclusion as the main interventions. These interventions have been individually documented to get insights about the related studies. The qualitative results suggest that there is a significant role of public and social institutions, related experiences, economic nature of intervention and technical advancement in financial services in fostering financial empowerment of women.

Also, we have presented a tabular synthesis of 24 intervention or experimental studies, which give an insight about the kind of intervention, the key findings and the research methodology that has been adopted in previous studies (Table 4 ). The findings from intervention studies suggest that economic interventions alone or bundled with social interventions were useful in financially empowering women.

Previous studies such as Holloway et al. ( 2017 ) and Kalaitzi et al. ( 2017 ) have used thematic mapping and traditional review methods to approach similar problem. Holloway et al. ( 2017 ) studied the impact of various saving, credit, payments and insurance products on women empowerment and found that there are numerous demand and supply-side barriers, some of which could be overcome by product design features. The study suggested that a greater degree of control and privacy surrounding women’s income and expenditure decision could boost their inclusion in the financial system. Our study results supports this finding especially while planning financial inclusion of women through digital ways where transparency, sensitivity and awareness must be considered as important variables.

Kalaitzi et al. ( 2017 ) identified 26 barriers to women leadership in Healthcare, Academia and Business, some of which were common while some were found to be starkly different across sectors. A systematic review by Roy and Patro ( 2022) synthesized evidence from 73 studies to find out that demand side factors were the main cause of gender-based exclusion. Unlike these studies, we have not only identified the different types of barriers, but also have attempted to understand the nature of these barriers, which has led to physical, social, mental, economic exploitation and overall suppression of women since a very long time. The focus of previous studies was only on the factors and the importance of the FI of women, giving us the opportunity to discuss the subject at a comprehensive level by including related interventions. Also, our findings about the experimental studies have not been presented in former studies making our contribution significant in women studies.

Thus, filling up the gaps, we have discussed the nature of six main barriers, summarized 24 key experimental studies and have clearly identified six major interventions that have been applied in the first 2 decades of the twenty-first century to provide a bird’s-view to systematically connect the factors as well as mediations found in past studies with the present and future.

However, as mentioned earlier in the result section of this paper, the presence of heterogeneity of the quantitative studies prevented us from conducting a meta-analysis, which we have tried to compensate with a rigorous synthesis of results from various studies. Sincere efforts have been made to include all the major contributors to the research topic, but due to the vastness of the subject and the limitation of our research design, some insightful studies may have been omitted from the discussion. Nevertheless, we believe that the current work covers inputs from many imminent studies, such as Kabeer ( 2011 ), Kabeer and Sweetman ( 2015 ), Beck et al. ( 2007 ), Brudevold et al. ( 2017 ), Swamy ( 2014 ), Efobi et al. ( 2018 ), Klapper and Dutt, ( 2015 ), and Dupas and Robinsion ( 2013 ) is able to provide the readers with a comprehensive, yet quick overview of the literature and its gaps while contributing to the development of useful interventions to achieve the sustainability goal of gender equality by 2030.

Practical implications

Considering the vastness of the subject and the need for urgent attention as the fifth sustainability goal, a quick understanding to formulate useful policies, programs and other interventions is much needed. Therefore, the findings of our study can provide useful insights to policy makers.

The barriers to financial Inclusion of women have been found to be inter-related and cyclical. This implies that a constant endeavor to eradicate even one such hurdle will have a multifold effect and will be useful in removing others. On the flip side, if attention is not paid to remove even one of these hurdles, they will keep occurring and obstructing the way of women’s development. Therefore, long-term policy interventions with continuous monitoring of efforts are required to bring about inclusive financial growth of women.

We have found through our exploration of intervention studies (Table 3 ) that though Government-to-people transfers (G2P), such as pensions, conditional cash transfers, financial literacy programs, microfinance, other socioeconomic transfers and products & services of public facility institutions such as post-offices, have resulted in the growth of savings and thereby higher entrepreneurship among women, but the related experiences of poor women determine their likelihood of connecting with the system in the long run. Hence, merely designing the intervention is not enough, and careful monitoring of such interventions must be done to achieve the objectives.

We have also found that SHGs, NGOs and other local communities enable women to become a part of the value chain and the familiarity and trust of vulnerable women in such organizations gives them a comparative advantage over other formal institutions. Therefore, as these formal or informal setups help women to get past the psychological hurdles, they must be included in all programs devised for including women in the financial system.

Moreover, we have found digital inclusion to be the most promising intervention with the widest range and prospects to connect with left-behind poor women. This calls for a sensitive customized approach keeping in mind the convenience of vulnerable and less educated women in adapting to the digital ways.

Furthermore, through our exploration of experimental studies (Table 4 ) we have found that economic interventions are more useful than social interventions in promoting entrepreneurship, savings, consumption and general betterment of the lifestyle of women. However, the most effective programs are those in which both economic and social components are incorporated. This insight can be utilized towards designing valuable mediations to support entrepreneurship among women, keeping in view that such intervention should not just be on papers, but must actually reach to the beneficiary and be utilized towards the identified cause only.

Future scope for research

The 67 studies discussed in this work have exposed many gaps in the related literature. As we have found that all the barriers are inter-related and cyclical, there is a need to break the cycle. Our findings can help future researchers to develop deeper insights about each of the highlighted barrier. A few future areas for research have been identified as:

Meaningful and important insights can be derived from ethnic studies to measure the impact of cultural institutions such as women’s dress codes and their expected public behavior on the level of their economic participation.

Exploration of behavioral irrationality of rural women towards financial products and services.

Biasness at the workplace in terms of income, authority and leadership should be explored further to devise suitable interventions.

The perception, attitude, and behavior of women towards finance have been evaluated in many studies, but not much has been discussed to understand the supply-side psychological hurdles at the individual level in disbursal of finance.

Likewise, our results suggest and discuss the evaluation of most effective interventions, which can help researchers to understand the way these mediations have developed so far and the way in which they can be improvised. Some future areas, which may be explored in theory may be:

The usefulness of online education to promote financial literacy and awareness in the remote corners of countries and across countries.

The lack of discussion about insurance products to mitigate risk and encourage investments among women can be addressed.

There is a need to discuss security, transparency and awareness in digital financial services along with thoughtfully designing simpler digital interfaces, tools and devices customized for women.

Moreover, as the problem of the FI of women has evidently been discussed primarily in developing nations, there is a need for exploration studies about poor or indigenous women in developed countries.

Thus, offering a deeper insight to the subject of Women empowerment through Financial Inclusion, we have identified six prominent barriers to FI of women: patriarchy structures, psychological factors, low income/wages, low financial literacy, low financial accessibility and ethnicity and have uniquely found that these barriers are interconnected with cyclical impact, resulting in redistribution effects that further widen the gaps between the privileged and the underprivileged, which must be considered while designing interventions in future.

Similarly, we have recognized six main interventions that have been introduced thus far: government and corporate programs/policies, microfinance, formal saving accounts/services, cash or asset transfer, self-help groups and digital inclusion and have presented various methods and findings of related experimental researches to provide direction for future inquiry. The consequences, appreciation and criticism of various interventions have been documented in the results and discussion to provide useful vision for future policy or theoretic implementation. Overall, this study has exclusively presented a summary of the barriers and interventions, which have been inquired into during 2000–2020 thereby contributing to achieving sustainable development goal (SDG 5) of ending gender inequality issues by 2030.

Data availability

All data generated or analyzed during this study are included in this published article and its supplementary information file.

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Saluja, O.B., Singh, P. & Kumar, H. Barriers and interventions on the way to empower women through financial inclusion: a 2 decades systematic review (2000–2020). Humanit Soc Sci Commun 10 , 148 (2023). https://doi.org/10.1057/s41599-023-01640-y

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From poverty to empowerment: Raising the bar for sustainable and inclusive growth

Growth, inclusion, and sustainability are connected, often complementing one another but sometimes pulling in different directions. 1 While inclusion intersects with issues of race and gender, this report focuses on economic inclusion for the population as a whole. MGI and McKinsey have a large body of research examining inclusion from racial and gender perspectives. Similarly, while sustainability encompasses many priorities, this research focuses specifically on the net-zero transition. This research explores how growth can contribute to higher living standards and a greener world, building on the tremendous progress of the past half century. Specifically, it looks at the economics of addressing both poverty and climate change in a decisive way—as well as the trade-offs involved.

We focus on established global aspirations without imposing constraints on the ambitions. On the sustainability side, the Paris Agreement laid out a framework to limit temperature rise to well below 2.0°C (and preferably to 1.5°C) relative to preindustrial levels. In response, many countries have committed to reaching net-zero emissions. On inclusion, while the world has made historic strides against extreme poverty, development experts and economists have discussed setting a higher bar for living standards. The UN Sustainable Development Goals (SDGs) propose achieving adequate nutrition, health, education, clean water, energy, and living conditions for all. The concept of economic empowerment used in this research captures these aspirations. For each country, we estimate the point at which individuals can meet their essential needs and begin to have some security. This does not undermine the goal of eliminating extreme poverty; it explores how to move further toward a world in which people realize more of their own potential.

The actions taken (or not) in this decade will determine what kind of world the next generation will inherit. This research therefore considers how much progress could be feasible by 2030. 2 We use a 2020 starting point to give a clear decade-long view of potential progress. Scenarios from the Network for Greening the Financial System (NGFS), the basis for our sustainability analysis, use 2020 as their starting point. Based on investment in low-emissions assets and increases in empowerment in 2021 and 2022, the scale of spending needed this decade has not dramatically shifted. The time frame is intentional. At today’s level of emissions, the world’s carbon budget for holding to a 1.5°C path is expected to run out around the end of the decade. In addition, 2030 is the target for the SDGs. Without faster progress on empowerment, the next generation could enter adulthood ill-equipped for the jobs of the future, putting many at risk of falling further behind.

Key findings

• This research considers growth, inclusion, and sustainability as parts of a connected system. It assesses the extent to which accelerated growth can further the two defining societal aspirations of our time: raising minimum living standards and limiting global warming. It also frames the choices countries face in a decisive decade that will determine the state of the world in 2050.
• Beyond ending poverty, the next challenge is progressing toward economic empowerment, which enables people to realize more of their potential. Economic growth has fueled tremendous poverty reduction in the past half century. Many have argued that the $2.15 per day extreme poverty line needs a complementary benchmark to gauge progress beyond that point. We frame this higher bar as the empowerment line, the level at which people can afford to meet essential needs such as nutrition, housing, healthcare, and education; they also gain a modest sense of security and have reduced risk of slipping back into poverty. Empowerment starts at $12 per day in purchasing power parity terms globally, with regional variations to account for different norms and costs. As of 2020, some 730 million people lived in extreme poverty, while 4.7 billion were below the empowerment line.
• The pursuit of economic empowerment must be viewed in conjunction with global net-zero commitments. Addressing the causes of climate change is a pressing economic and social challenge—and at today’s emissions levels, the carbon budget to limit warming to 1.5°C is trending toward being exhausted by 2030. Achieving net-zero emissions, as many countries have pledged to do, would require a major increase in investment and in the capacity of energy and resource systems.
• The dual goals pose tensions that need to be managed. Rapid improvement in living standards could raise demand for energy- and emissions-intensive products and services (although historical patterns could change if new consumers shift behaviors). A disorderly net-zero transition could increase energy and other costs for consumers and cause labor market frictions, creating a disproportionate burden for low-income households; if people feel it is crowding prospects for their lives to improve, support could waver. At the same time, not acting to curb temperature rise could harm economies, and the poorest populations are most heavily exposed to physical risks.
• The combined empowerment and net-zero investment gaps amount to an enormous 8 percent of global GDP annually over the decade. We quantify the cumulative spending boost that would close both gaps by 2030. Lifting everyone above the empowerment threshold implies that the people currently below it would need 40 percent more spending power on average by 2030 (even more in sub-Saharan Africa and India). To get on a net-zero trajectory, the world would need to muster an additional $41 trillion in low-emissions investment (above continued 2020 spending levels, cumulatively through 2030). These are shifts in income, consumption, and investment of an unprecedented magnitude.
• Businesses and the market economy can generate half the combined resources through growth and innovation. This involves not only maintaining baseline growth but also boosting productivity even further through investment in technology, new businesses, and human capital. Accelerated growth and better-paying jobs could close almost two-thirds of the global empowerment gap. On the climate transition, even with current policies, we see potential for almost $10 trillion of low-emissions alternatives to become viable for private actors, especially in power and mobility. All told, growth and innovation, even without policy changes, could unlock just over a third of the step-up needed in net-zero spending.
• Beyond what market forces can address under current policies, substantial gaps remain—and so do hard choices about whether and how to fill them. Growth and innovation alone could generate progress that would be historic in and of itself. Yet closing both gaps in full would take even more than what they can deliver without new policies and incentives. We estimate the unfilled economic gap at 4 percent of GDP per year globally, or $40 trillion, cumulatively through the decade. Developing countries account for nearly two-thirds of this.
• Additional societal commitments could accelerate progress but come with their own risks. Combined public and private action could deliver housing, healthcare, education, and food that is more affordable and leads to better outcomes, potentially unlocking $3 trillion of benefits to those below the empowerment line. Public finance support could change the risk and cost profiles of net-zero investments, unlocking a further $17 trillion from private actors over the decade. However, such extensive commitments could distort the baseline economy. In a scenario where high-income economies choose to shoulder both gaps for the world, it would amount to 3.5 percent of their own GDP annually; the global financial system would need to accommodate higher cross-border flows.
• Empowering large populations while getting on a net-zero trajectory would take a global push for growth, innovation, and collaboration. Growth boosts economic empowerment and creates the financing capacity for net zero. The upside is compelling: some 2.1 billion people could move above the empowerment line and 600 million people out of poverty, taking significant steps on their journey toward full economic empowerment. Yet addressing residual gaps would take bolder innovation in finance, technology, industry, and policy. The possibilities include creating new multilateral financing vehicles; integrating low-income countries into global trade in a way that lifts local communities and small businesses; developing sustainable cities with affordable housing; and designing effective carbon markets. Private actors, governments, and nonprofits would need to combine their capabilities and expertise—and think without limits about how they can contribute to meeting this moment.

Since these are urgent, simultaneous challenges, we bring them together to offer a more holistic view, considering the interactions between growth, economic inclusion, and the net-zero transition (Exhibit 1). Productivity-driven growth lifts incomes and raises living standards while unlocking the financing capacity needed for a low-emissions future. Meanwhile, innovation that goes hand in hand with growth can bring down the costs of low-emissions technologies. This could lower the spending needed for the transition and reduce the risk of households facing higher costs as a result.

Yet tensions exist in the system. Global economic empowerment implies billions of people with growing demand for energy, while a disorderly net-zero transition could create challenges of affordability. Some may view investment in the transition as a project that crowds out prospects for their lives to improve—but since the poorest populations are most exposed to the physical risks of climate change, reducing those risks is part of ensuring general well-being.

This research sizes the empowerment and net-zero gaps and explores scenarios of how they could theoretically be closed. The empowerment gap is the cumulative boost in consumption needed to meet everyone’s essential needs by 2030, while the net-zero investment gap is the cumulative spending on low-emissions technologies needed over the decade, above what is happening at present. Since neither could be addressed instantaneously, we assume steadily upward progress over the decade. This hypothetical would require the equivalent of 8 percent of global GDP annually, with significant variations by region.

This is obviously a massive sum, and its scale leads us to explore how much market forces could deliver. We find that accelerated growth and business innovation could take the world halfway to closing the combined gaps. Companies can make major contributions and benefit from new opportunities, even under current policy frameworks.

Beyond this point, the remaining economic gaps leave societies with choices about whether to address both challenges in full, in part, or not at all. Countries might prioritize one of these transformations over the other, or leave both unaddressed beyond what market forces can do. They might also attempt to make partial progress on both fronts. Closing the gaps would require protecting baseline growth against headwinds, boosting productivity and innovation to maximum levels, and potentially making societal commitments equivalent to 2 percent of global GDP, as an annual average, over the decade ($20 trillion cumulatively). Importantly, societal commitments would activate more innovation and investment by private actors. But actions on this scale would also take economies into uncharted territory, demanding more attention to maintaining economic growth and stability.

Learn more about how we are accelerating sustainable inclusive growth

We frame the empowerment line as the level at which people can meet their essential needs and realize more of their potential. It has a global floor of $12 per day in PPP (versus the extreme poverty line of $2.15 PPP).

Societies are already spending on the twin priorities. In 2020, some 90 percent of the $1.4 trillion of global net-zero spending was either made by the public sector or subsidized in some way. About 20 percent of the consumption of people below the empowerment line was supported by public and social spending on in-kind transfers in 2020, by our estimates.

Are there further opportunities to close gaps without risking growth? All economies have constraints on fiscal resources. They would need to weigh those constraints against the implications of leaving urgent needs unaddressed—and against the potential longer-term payoff of an economically empowered population and a stable climate. Our research aims to provide ambition, provocation, and a fact base to inform these debates.

Economic empowerment raises living standards

More than a billion people have exited extreme poverty in recent decades. Yet large populations above this line lack adequate healthcare, quality education for their children, or decent housing. The SDGs incorporate higher aspirations, while the UN Development Programme calls to “expand the sense of possibility in people’s lives.” 3 Human development report 2021–22: Uncertain times, unsettled lives: Shaping our future in a transforming world , UN Development Programme, September 2022. When people have health, education, and stability, they are equipped to improve their own circumstances.

Continuing to raise the bar everywhere in the world

The World Bank’s extreme poverty line was recently updated from $1.90 to $2.15 per person per day (in purchasing power parity, or PPP, terms). 4 This 2022 update in the global poverty line also involved changing from 2011 PPP terms to 2017 PPP terms. But as more people exceed it, the world needs a complementary benchmark to track progress toward a higher living standard.

The concept of economic empowerment described in this research ensures that everyone has the means to access the full range of basics (Exhibit 2). Empowerment  still implies living in frugal circumstances. But people can begin to build a modest buffer for weathering emergencies and can invest in themselves to become more productive. 5 This concept is rooted in earlier MGI research that quantified the cost of a basket of essential goods and services for households in India. See From poverty to empowerment: India’s imperative for jobs, growth, and effective basic services , McKinsey Global Institute, February 2014.

When people rise meaningfully above poverty, many outcomes improve, including childhood mortality, life expectancy, years of schooling, and digital and financial inclusion. Life satisfaction increases when people shed the stress of not being able to make ends meet and can fulfill more of their material desires. 6 Daniel Kahneman and Angus Deaton, “High income improves evaluation of life but not emotional well-being,” Proceedings of the National Academy of Sciences , volume 107, issue 38, September 2010. Andrew T. Jebb et al., “Happiness, income satiation and turning points around the world,” Nature Human Behaviour , volume 2, 2018, found a similar relationship between life satisfaction and prosperity globally.

Image description: A circular diagram illustrates ten components of empowerment. Eight of them are characteristics of sufficiency, including food, healthcare, and education, and the other two are characteristics of security, including civic engagement and a savings buffer. End of image description.

How we quantify the higher bar

We start with consumption of $12 per person per day in PPP terms as a global floor, in line with other research (see sidebar, “Measuring economic inclusion”). For countries at higher income levels, we raise the line to account for local norms and the costs of food, housing and energy, safe water access, transportation, healthcare, education, clothing, and communication, using WageIndicator data as of 2022 and 2023. Purchasing power is consistently set to obtain that basket of goods plus a small margin for social activities and savings. 7 We note that having one empowerment threshold for a given country does not reflect how housing and other costs vary from region to region within the country; it costs more to live an empowered life in an expensive major city than in a poorer rural area. The housing may be a modest apartment; the transportation could be a transit pass, a used car, or perhaps a motorbike in some contexts.

Measuring economic inclusion

It’s been said that you can’t improve what you can’t measure. In the case of poverty, the challenge is not a lack of metrics but rather a proliferation of them. 1 Anthony B. Atkinson, Measuring poverty around the world , Princeton University Press, 2019. Starting with the holistic SDGs, economic inclusion can be framed as moving everyone toward health and well-being, education, affordable essentials, and sustainable communities.

Poverty can be more specifically expressed in monetary or nonmonetary terms. 2 Nonmonetary approaches include the Multidimensional Poverty Index developed by Sabina Alkire and James Foster, and the UN Development Programme’s Human Development Index. See Global multidimensional poverty index 2023 , Oxford Poverty & Human Development Initiative and UNDP, 2023. It is often calculated monetarily by looking at income or consumption, using both absolute and relative terms or a hybrid of the two (exhibit). The World Bank, for example, sets its global extreme poverty line at $2.15 per person per day in 2017 purchasing power parity terms. This is the median of national poverty lines in more than two dozen of the world’s poorest countries. 3 Updated from $1.90 in 2011 PPP. See Dean Jolliffe et al., Assessing the impact of the 2017 PPPs on the international poverty line and global poverty , World Bank policy research working paper number 9941, February 2022. To account for higher living standards as countries move up the development curve, the World Bank introduced poverty lines specific to lower-middle- and upper-middle-income economies. 4 R. Andres Castaneda Aguilar et al., “September 2022 global poverty update from the World Bank: 2017 PPPs and new data for India,” World Bank Data Blog, September 14, 2022.

Image description:

Two sets of vertical, stacked bar charts show an example of daily spending patterns that illustrates how the means to achieve sufficiency in basic needs varies by stages of development. The set of bar charts on the left shows two bars for the daily spending patterns of a low-/middle-income economy in 2017 PPP terms. One bar is for the extreme poverty line, at $2.15, and the other is for the empowerment line, at $12.

The set of bars on the right shows two bars and compares the breakdown of spending categories for a low-/middle-income economy empowerment line vs a high-income economy empowerment line. Figures are shown as a percent of total, and categories include food, housing, health, education, transportation, and all others. The low-/middle-income economy bar shows more spending on food than in a high-income economy. The high-income economy bar shows spending on housing equal to spending in a low-/middle-income economy but more spending on health compared to a low-/middle-income economy.

Below each set of bars, scaled circles visualize the population living below the specified line in 2020. In low-/middle-income economies, 0.7 billion live below the extreme poverty line and 3.7 billion live below the empowerment line; in high-income economies, 0.3 billion live below the empowerment line.

End of image description.

Another approach uses the extreme poverty threshold as a floor, combined with lines that rise with countries’ income levels. 5 See, for example, Martin Ravallion and Shaohua Chen, “A proposal for truly global poverty measures,” Global Policy , volume 4, issue 3, September 2013. Others have proposed an entirely relative line based on median income or consumption. 6 Christopher Garroway and Juan R. de Laiglesia, On the relevance of relative poverty for developing countries , OECD Development Centre, working paper number 314, September 2012.

Another set of literature uses the aspiration for everyone globally to reach a higher living standard. Development economist Lant Pritchett, for example, proposes using the high-income poverty threshold universally, arguing that there is basic unfairness in setting a line with lower living standards in developing countries. 7 Lant Pritchett, “Monitoring progress on poverty: The case for a high global poverty line,” in Eradicating global poverty: A noble goal, but how do we measure it? Emma Samman, ed., Overseas Development Institute working paper, 2013. The lower bound of a high-income poverty threshold has inspired definitions of a global middle class, a topic of debate. Abhijit Banerjee and Esther Duflo have explored the consumption patterns that point to someone exiting poverty and entering the global middle class. 8 Abhijit V. Banerjee and Esther Duflo, “What is middle class about the middle classes around the world?” Journal of Economic Perspectives , volume 22, number 2, spring 2008; and William Easterly, “The middle class consensus and economic development,” Journal of Economic Growth , volume 6, 2001.

The concept of economic empowerment in this research defines a minimum acceptable standard of living as having the means to afford nutrition, education, healthcare, housing, water and sanitation, and energy. Many of these aspirations are embodied in the SDGs; they are essential to enabling people to realize more of their potential. Empowerment starts with an absolute floor that lifts people past the point at which they are no longer at extreme risk of falling back into poverty. 9 Latin American economic outlook 2019: Development in transition , OECD, Economic Commission for Latin America and the Caribbean, CAF Development Bank of Latin America, and the European Union, 2019. Middle-class households have also been defined as “comfortably clear of the risk of poverty” in Anthony B. Atkinson and Andrea Brandolini, “On the identification of the middle class,” in Income inequality: Economic disparities and the middle class in affluent countries , Janet C. Gornick and Markus Jantti, eds., Stanford University Press, 2013. Research from Brookings economist Homi Kharas (cofounder of World Data Lab, one of the main sources of data for this analysis) suggests that this level is $12 per person per day in PPP terms. 10 Homi Kharas, The emerging middle class in developing countries , OECD Development Centre, working paper number 285, January 2010, defines the global middle-class line as $10 in 2005 PPP, since raised to $12 in 2017 PPP. Also using this general level are Surjit Singh Bhalla, Second among equals: The middle-class kingdoms of India and China , 2007; Nancy Birdsall, Nora Lustig, and Christian Meyer, The strugglers: The new poor in Latin America? Center for Global Development working paper number 337, 2013; and Rakesh Kochhar, “The pandemic stalls growth in the global middle class, pushes poverty up sharply,” Pew Research Center, March 2021. See also worlddata.io.

Since we aim to use a common definition of basic needs and security worldwide, why not an absolute PPP threshold? First, the data set from the WageIndicator Foundation that we use for setting thresholds above the global floor prices a consistent basket of essential goods and services, not the economy-wide basket used in PPP measures. 11 This data set compiles costs of essential goods (rather than the whole economy, which PPP indices measure). See Martin Guzi et al., Living wages and income worldwide , WageIndicator Foundation, 2023, and wageindicator.org. Second, some costs vary due to differing norms for the type or amount of a good or service related to empowerment (for example, the type of transportation required to secure a job or the minimum quantity of healthcare available to consumers). Our approach therefore gradually scales up empowerment lines for countries with progressively higher levels of income. 12 The combination of a floor with a gradual scaling-up approach is used by Dean Jolliffe and Espen Beer Prydz, “Societal poverty: A relative and relevant measure,” World Bank Economic Review , volume 35, issue 1, February 2021.

Our approach is consistent with economist Martin Ravallion’s view: “Any absolute line you choose will not adjust over time or across countries for differences in the costs of avoiding social exclusion and relative deprivation. . . . Where and when you live matters as to whether you should be considered poor at any given level of real consumption.” 13 Martin Ravallion, “Two goals for fighting poverty,” in Eradicating global poverty: A noble goal, but how do we measure it? Emma Samman, ed., Overseas Development Institute working paper, 2013. Nobel laureate Amartya Sen also notes that what is needed for daily life may differ across societies. 14 Amartya Sen, Development as freedom , Oxford University Press, 1999.

Empowerment is related to the “living wage” concept that has gained traction for employers and workers to evaluate wages against living costs. It has been broadly defined as the amount individuals need to earn to cover their basic household expenses plus taxes. 15 See, for example, Amy K. Glasmeier, Living Wage Calculator, livingwage.mit.edu. The empowerment line is a consumption-based counterpart that complements this income-based metric.

In both high- and low-income countries, we view empowerment as the point at which people can begin to invest in themselves and have a fuller range of choices about shaping their lives. This echoes Sen’s assertions that income alone does not reflect well-being. Economic empowerment conveys the ability to participate in society, the freedom to enjoy life, and individual agency.

Finally, economic inclusion raises the larger topics of inequality and redistribution. In this research, we determine what it would take to lift the poorest population segments, a goal that has widespread support. We explicitly do not model redistribution from the wealthiest segments as the means to achieve this. We also recognize that poverty intersects with issues of race and gender, but this analysis does not incorporate demographics.

We then convert from PPP terms to 2020 US dollars. Expressed that way, the empowerment threshold ranges between $3 and $50 per capita per day across the countries in our data set. 8 Iceland and Switzerland are outliers on the upper end of the empowerment line range and above $50. To give some examples, the line is about $3 per capita in Afghanistan and Sudan; $4 to $5 in India, Indonesia, and Nigeria; $8 to $11 in China, Mexico, South Africa, and Thailand; $15 to $45 in Australia, Denmark, Italy, Japan, and Poland; and $50 in the United States. Establishing each country’s threshold makes it possible to size its empowerment gap—the share of the population that falls short of sufficiency as well as the dollar amount that would bridge this gap.

Because we use a consumption-based metric, taxes and direct transfers are already taken into account. Cost-of-living thresholds are then adjusted for the estimated in-kind transfers provided in each country. Universal healthcare, for example, lowers out-of-pocket healthcare costs for individuals. We note, however, the challenges of accurately tracking how public services reach the targeted recipients. Indeed, one way for countries to advance empowerment is through logistical and operational improvements to ensure that social benefit programs can be accessed by their intended beneficiaries.

Finally, we note that empowerment is a per-person metric. Families that combine their resources would have better prospects for meeting their basic needs than individuals below this line living alone.

Driving sustainable and inclusive growth in G20 economies

Who is not fully economically empowered.

About 4.7 billion people worldwide (approximately 60 percent of the global population) are not yet fully economically empowered by this benchmark (Exhibit 3). 9 For both empowerment and sustainability analyses, we use regional groupings that follow NGFS conventions. Some 4.4 billion of them live in low- and middle-income countries; nearly half are in sub-Saharan Africa and India. Some may live in rural villages far from the nearest medical clinic; others are in crowded urban tenements.

For many people below the empowerment line, especially in the world’s major cities, the high cost of housing eats into other priorities.

Yet more than 300 million people in high-income countries also fall into this category, including just over a quarter of the population in the United States and in the European Union and United Kingdom. While even high-income countries have some degree of homelessness and deprivation, most of the population below the empowerment line in these regions does not experience such severe poverty. Yet some of their essential needs are not sufficiently met. In many cases, the high cost of housing eats into other priorities. People may not be able to invest in better education or training for themselves or their children. Closer to the threshold, a person may rent a basic apartment with a decently equipped kitchen; he may even own a TV, a mobile phone, or a used car. But living paycheck to paycheck means there is little savings to handle emergencies, move, or retire comfortably. Someone whose family members have disabilities may have limited prospects for employment without caregiving support, for example.

The family of four squeezed into a small studio apartment in Los Angeles is not fully empowered. Neither is the street vendor in Lima nor the subsistence farmer in Laos.

A horizontal bar chart shows the breakdown of the population by spending level in relation to the empowerment line globally and by regions. The first bar is the global bar, which shows 4.7 billion people, or 61% of the global population, live below the empowerment line. Regional breakdowns show that sub-Saharan Africa has the highest share of population below the empowerment line, at 90%, followed by India, at 77%. Japan has the lowest percentage of people below the empowerment line, 19%.

The magnitude of lifting everyone to empowerment

Our analysis assumes that people below the line gain a bit more spending power each year through 2030. Because we adopt a common time frame for the world, this ramp-up to full empowerment would be steeper for the poorest deciles and more gradual for deciles closer to the line.

Using these parameters, achieving universal empowerment by 2030 would involve boosting the cumulative consumption of 4.7 billion people worldwide over the decade by just over $37 trillion (the empowerment gap). This boost is equivalent to 40 percent of this cohort’s continued spending at 2020 levels. 10 The empowerment gap refers exclusively to the boost in spending power over 2020 levels. The current consumption of people below empowerment thresholds would amount to some $94 trillion over ten years, if extended at current levels. We note that the gap is the product of how the threshold and the timeline are set. Lowering the threshold or allowing this trajectory to play out over a longer time frame would produce different results.

Making progress toward closing the empowerment gap matters. For billions of people, achieving minimum living standards is the foremost existential issue. Their hopes involve getting out of unsustainably high debt, securing healthcare for their children, or moving in search of a better job. Leaving so many people in vulnerable circumstances imposes limits on growth and risks destabilizing societies.

Empowerment could yield long-term benefits—and not only for the individuals whose lives improve. It would eventually create a virtuous cycle. Many more people would have the skills and agency to participate in a knowledge-intensive and digital economy. They would also become consumers, fueling future growth.

The net-zero investment gap is the incremental low-emissions spending needed by 2030 to change the climate trajectory

Alongside the aspiration to raise living standards, countries and companies worldwide have committed to reducing emissions to net zero, aiming to limit global warming to 1.5°C relative to preindustrial levels in the current century. This research builds on scenarios from the Network for Greening the Financial System to quantify the low-emissions spending needed to get on this pathway by 2030 (see sidebar, “Measuring the net-zero investment need”). Across seven sectors globally, our analysis finds the biggest needs in power and mobility (Exhibit 4).

Square area charts show the low-emissions spending need and net-zero investment gap by energy and use sectors. From largest spending need to lowest, they are power, mobility, buildings, agriculture, industry, forestry, and hydrogen.

Each square is sized by each sector’s spending need, and each contains a shaded region that shows the proportion of spending need that is the net-zero investment gap. Power and buildings have the smallest gaps compared to other sectors proportionally. Globally, $55 trillion is the total for low-emissions spending need, and $41 trillion is the net-zero investment gap.

This research looks at scenarios of baseline economic growth (2.7 percent globally) and accelerated growth (3.4 percent globally). 11 Baseline growth relies on projections from Oxford Economics (aggregating different growth rates across countries). Accelerated growth is an adjusted scenario in which productivity gains add another 0.7 percentage point. Given the critical importance of growth to economic inclusion, we use the higher assumption for net zero, a scenario that could add an estimated 3 gigatons (Gt) of energy-related CO2 emissions in 2030 if historical relations of growth and emissions hold. This means that low-emissions spending would correspondingly need to scale up almost $5 trillion globally beyond what would be needed in a baseline scenario. In this high-growth world, getting on track for net zero would take cumulative investment and spending of $55 trillion on low-emissions assets over the decade—a step-up of $41 trillion as compared with simply extending 2020 levels. We refer to this step-up as the net-zero investment gap. 12 These figures differ from those in our 2022 report The net-zero transition: What it would cost, what it could bring . Here we focus only on low-emissions spending rather than total high- and low-emissions spending, and we use a 2030 rather than a 2050 time frame. This research also includes updated data and refined assumptions. At the same time, higher growth would expand the world’s financing capacity.

It is important to note that this $41 trillion figure does not reflect the world’s full energy and land-use investment; it excludes spending on high-emissions assets. Some high-emissions spending would continue, particularly in developing economies that are still expanding energy access, but overall global levels would fall. Some of the step-up in low-emissions spending could be captured as capital is reallocated away from high-emissions assets, provided that low-emissions alternatives become viable and cost competitive.

Measuring the net-zero investment need

We build on scenarios from the Network for Greening the Financial System (NGFS), adjusting for baseline and accelerated growth. NGFS scenarios are frequently used in risk analysis, provide regional granularity, and include a holistic view of emissions. This analysis is performed for approximately 50 key low-emissions technologies and 12 regions, addressing 85 percent of global greenhouse gas emissions. In some cases, NGFS variables were downscaled for more granular quantification. Our “investment” need includes both capital investment and consumer spending on items such as electric vehicles. We include only low-emissions investments such as solar and wind power, while excluding high-emissions investments in areas such as fossil fuels.

We build on the NGFS Net Zero 2050 scenario (with warming of 1.5°C by 2100) to estimate the incremental low-emissions investment that would be needed (the net-zero investment gap). The NGFS Current Policies scenario enables us to estimate how much spending is likely under current policy frameworks (with warming of about 3.0°C by 2100). Other “current policy” scenarios may produce slightly different warming outcomes, though all would find a gap with a net-zero trajectory.

We also employ the McKinsey Transition Finance Model to answer the question of who pays. First we determine, for each lever and region combination, the share of grant and concessional spending required to make low-emissions technologies cost competitive with high-emissions alternatives based on their total cost of ownership, and to compensate consumers and companies for the technological and market risks associated with them. We rely on this modeling even for 2020, due to limited data on present-day subsidies; however, where available, we have triangulated our results with actual data. The rest of the spending need is then split between private actors (corporations and consumers) and public actors (governments, state-owned enterprises, multilaterals, and philanthropies) based on historical patterns and expert input. We acknowledge the many uncertainties  in both this allocation and the size of the investment gap. 1 See The net-zero transition: What it would cost, what it could bring , McKinsey Global Institute, January 2022.

A note on data sources

The net-zero modeling used in this research relied on several proprietary McKinsey assets, including McKinsey Net Zero Analytics, McKinsey Hydrogen Insights, the McKinsey Center for Future Mobility, and McKinsey Power Solutions.

Among the external sources of data in this report, we acknowledge the International Energy Agency (Paris). We specifically relied on three IEA sources: Net zero by 2050 , 2021, https://www.iea.org/reports/net-zero-by-2050; World energy outlook 2021 , https://www.iea.org/reports/world-energy-outlook-2021; and Energy technology perspectives 2017 , https://www.iea.org/reports/energy-technology-perspectives-2017. All are license CC BY 4.0.

We note that some analysis in this research was derived from IEA material, and MGI is solely liable and responsible for it; it is not endorsed by the IEA in any manner. This holds true for all providers of the data that went into our analysis. We gratefully acknowledge their assistance and input, but the conclusions and any errors are our own.

Our analysis assumes that providing incentives for low-emissions spending through subsidies would produce the same outcome as discouraging high-emissions spending through taxes. In practice, however, more policy mechanisms are needed to limit high-emissions spending. Some scholars have pointed to carbon taxes and subsidies as complements rather than a binary choice, especially at early stages of the net-zero transition. 13 For example, see Daron Acemoglu et al., “The environmental and directed technical change,” American Economic Review , volume 102, number 1, February 2012.

Empowerment and the net-zero transition affect each other—and some tensions would need to be managed

As people move toward empowerment, their consumption rises. As mentioned earlier, our analysis builds in the assumption that higher economic growth increases the net-zero financing need, relying on the historical relationship of growth to the production and consumption of energy- and emissions-intensive products. Going further to achieve full empowerment by 2030 could push these needs—and therefore emissions—even higher than what is accounted for in this adjustment.

Using data from India, South Africa, the United Kingdom, and the United States, we estimate that moving everyone to the empowerment line could raise demand for energy-intensive products and services, and in turn emissions, by as much as an additional 15 percent above the effects of accelerated growth alone. 14 Data on household energy expenditures from the UK Office for National Statistics, US Consumer Expenditure Survey, Statistics South Africa, and India 68th Round of National Sample Survey. Energy expenditures are uplifted for each decile under the empowerment line, then used to estimate the relative increase in emissions per capita for each country (based on World Bank CO 2 energy-related emissions data for each country’s direct emissions). Does not include non-energy and non-CO 2 emissions, which could change the estimate. However, significant uncertainties surround the effects of growth and empowerment on emissions. Historical patterns could change, for example, if consumers shift behaviors.

Just as empowerment affects the net-zero transition, the reverse is also true. If interventions such as carbon taxes increase the costs of energy and other goods for consumers, they could create a disproportionate burden for people below the empowerment line. 15 Energy prices could rise in the near term, for example, if carbon prices are imposed before low-emissions energy sources are widely available and cost competitive. But they could also decline over the longer term (for example, due to the lower operating costs of renewable energy sources and through energy efficiency). Actions such as recycling carbon tax revenue into transfers or subsidies could protect low-income households and provide economic development for distressed communities. 16 See, for example, Jonathan L. Ramseur and Jane A. Leggett, Attaching a price to greenhouse gas emissions with a carbon tax or emissions fee: Considerations and potential impacts , US Congressional Research Service, 2019; Frederick van der Ploeg and Maria Chiara Paoli, “Recycling revenue to improve political feasibility of carbon pricing in the UK,” VoxEU, October 2021; and Baoping Shang, The poverty and distributional impacts of carbon pricing: Channels and policy implications , IMF working paper, 2021.

The net-zero transition could redistribute jobs across industries and regions.

The net-zero transition could produce a surge of jobs in construction, certain types of manufacturing, and operations. Previous MGI research found that job gains could slightly outweigh job losses globally. 17 The net-zero transition: What it would cost, what it could bring , McKinsey Global Institute, January 2022. See also World Employment and Social Outlook 2018: Greening with jobs , International Labour Organization, 2018. However, the small net impact disguises the possibility of substantial churn as jobs are redistributed across industries and regions. In addition, the jobs being added may require different skills.

These potential impacts on households and labor markets make it crucial to manage the transition effectively and support consumers and workers in the most affected regions and sectors.

The two aspirations also have complementary aspects. Not acting to curb temperature rise could harm growth—and empowerment—substantially through effects such as impairing the ability to work outdoors, agricultural losses, and damage to capital stock. Lower-income people would become even more exposed to hazards if climate change is not convincingly addressed. And research has shown that as households become more empowered, they are more likely to be aware of the risks of climate change and, in turn, lend support to net-zero policies. 18 Higher-income households are more likely to buy products with sustainability-related claims; see “ Consumers care about sustainability—and back it up with their wallets ,” McKinsey & Company, February 2023.

The gaps vary widely across regions

The empowerment and net-zero investment gaps vary in magnitude across different parts of the world, not only in absolute dollar terms but also relative to GDP.

In the timeline we have set to 2030, the global empowerment gap would be equivalent to about 4 percent of world GDP on average annually. However, it is only 1 percent of annual GDP in high-income regions, including Australia, Canada, the European Union and the United Kingdom, Japan, New Zealand, and the United States (Exhibit 5).

In developing regions, the starting point is harder. The total empowerment gap is the equivalent of 4 percent of GDP on average annually in the Middle East, 6 percent in Asia (not including China, India, or Japan), 7 percent in Latin America, 13 percent in India, and a daunting 45 percent in sub-Saharan Africa.

A table of three columns shows statistics on the empowerment gap by region. In the first column, a doughnut chart for each region shows the share of the global empowerment gap that region makes up. The second column shows a bar chart for each region that visualizes the annualized % of GDP equivalent, based on 2021–30. The third column lists the empowerment gap as a percentage of continued 2020 spending of people below the empowerment line. The table shows that lower-income regions, like sub-Saharan Africa, India, and Asia excluding China, India, and Japan generally account for a higher share of the $37 trillion empowerment gap.

The net-zero investment gap is also equivalent to about 4 percent of global GDP each year. It ranges from about 2 percent of GDP in Japan to 14 percent on average annually in India (Exhibit 6).

High-income regions have an annual net-zero investment gap on the order of about 3 percent of annual GDP on average, about four to five times higher than their 2020 levels of investment. Most developing regions have a larger net-zero investment gap relative to GDP. They face the twin challenges of replacing fossil fuel generation while substantially broadening energy access and meeting the energy needs of growing economies—and doing so in a low-emissions way. 19 NGFS scenarios account for difference in likely emissions reduction trajectories across developed and developing economies. Developed countries typically reach net zero earlier than developing countries.

A table of three columns shows statistics on the net-zero investment gap by region. In the first column, a doughnut chart for each region shows the share of the net-zero investment gap that region makes up. The second column shows a bar chart for each region that visualizes the annualized % of GDP equivalent, based on 2021–30. The third column lists the increase over 2020 levels of low-emissions spending. The table shows that each region has a unique share of the $41 trillion net-zero investment gap. China, US, and EU and UK account for the largest share of the gap.

Growth and business-led innovation could be the biggest drivers of economic empowerment

How could populations below the empowerment line gain more spending power? Our scenario starts with growth. By our estimates, aggregate baseline growth of 2.7 percent per year globally could generate enough income to give our target population the ability to meet some $14 trillion more of their needs over ten years. 20 The lift required for global empowerment is based on 2020 empowerment thresholds. We do not adjust annually, although the line may in fact rise due to increasing per capita income, changes in input costs, and other factors. Conversely, we also do not model the potential positive GDP implications of having many more empowered and productive workers. This could help lift 830 million people into empowerment by 2030 and bring some 160 million people out of poverty, reducing the share of the global population in poverty from 11 to 8 percent. 21 We use 20 percent of the empowerment line as a proxy for poverty. For countries at the floor of $12 PPP per day, this is slightly higher than the World Bank’s $2.15 line.

On top of this, businesses can improve productivity to accelerate global growth. Farm and non-farm sectors have the potential to raise productivity, in aggregate, by at least 0.5 to 1.0 percent each year across regions, as outlined in many prior MGI research  efforts. 22 Recent research includes The future of wealth and growth hangs in the balance (May 2023) and Rekindling US productivity for a new era (February 2023). This is not only about cost-saving efficiencies; it is also about innovation and new business creation, new types of work, and products and services that address new markets. If global growth could reach 3.4 percent annually by harnessing such opportunities, more resources would also become available for public goods and social spending.

Increasing investment and technology adoption will be key to these efforts. This creates the challenge—and the opportunity—to upskill workers to use those technologies and make successful job transitions into more productive sectors and better-paying occupations. Previous MGI research  has explored the scale of the skill shifts and occupational transitions that will likely be needed in the years ahead. 23 See, for example, Jobs lost, jobs gained: What the future of work will mean for jobs, skills, and wages , McKinsey Global Institute, November 2017. Our analysis here suggests that roughly 10 percent of lower- and mid-skill workers could see their wages rise if they are equipped to take on higher-skill jobs by 2030 in response to technology, sector-specific growth opportunities, and other trends.

Businesses have a critical role here. About half of workers’ lifetime earnings  is due to skill building through work experience and learning on the job; this dynamic is especially important for those without educational credentials who start out in low-wage work. 24 Human capital at work: The value of experience , McKinsey Global Institute, June 2022. Businesses can become more productive by accelerating this process: during the pandemic, for example, US workers  moved into different occupations, including better-paying ones, at a rate 50 percent higher than in the past. 25 Generative AI and the future of work in America , McKinsey Global Institute, July 2023. But upskilling does not happen without intentional effort. It will be a heavy lift for businesses to improve this dynamic, especially where the process involves bringing people from subsistence farming into more productive work.

Faster economic growth could almost eliminate extreme poverty by 2030.

All told, higher growth combined with creating and filling more productive jobs could close an additional $10 trillion of the global empowerment gap beyond what baseline growth can deliver, by our estimates. This includes the impact of social and public transfers rising in line with higher growth. This could raise living standards and transform lives on a massive scale, lifting 2.1 billion people into empowerment and 600 million more out of poverty. In this scenario, the share of the global population below the empowerment line drops from 60 percent to 30 percent and the share in poverty shrinks to 3 percent over the decade.

Lower-income countries would take longer to achieve full empowerment. But accelerated economic growth could eliminate the most severe forms of poverty in much of the world by 2030 (although we note the unique difficulties in places where conflicts are ongoing, among other deep-rooted structural issues).

The toughest challenge is in sub-Saharan Africa. If economic growth remains at the baseline, the absolute numbers of those experiencing the most extreme deprivation might actually tick up as the population rises. But accelerated productivity-driven growth could cut that population in half, which translates to 250 million people exiting poverty. The gap remaining to fully erase poverty in this scenario amounts to $120 billion over a decade, equivalent to about 5 percent of total public spending in these countries, projected at historical rates. At the same time, living standards would continue to improve for the rest of the population. In a high-growth scenario, the population above 50 percent of the empowerment standard would rise from 260 million in 2020 to 550 million in 2030. Transforming so many lives would expand the continent’s possibilities.

Some $15 trillion of new low-emissions spending could be unlocked this decade through growth and innovation

How much low-emissions spending can be spurred by growth and innovation? And what role will private actors play? This depends on whether each low-emissions investment opportunity is “in the money”—that is, competitive in total cost of ownership relative to traditional alternatives. We have analyzed these by technology, sector, and region.

Only about 10 percent of the $1.4 trillion low-emissions investment in 2020 was fully private. Our model starts by assuming these levels continue over the decade. This would mean an additional $14 trillion coming on stream by 2030. 26 Our breakdown of spending across public and private actors is based on a granular bottom-up modeled assessment across technologies and regions. For the public sector, we include grants and concessional financing and direct public spending. We have triangulated our results from 2020 with external estimates and find them broadly in line. Any discrepancies are likely due to differences in how subsidies are accounted for.

On top of that, an additional $15 trillion in investment could occur, even without changes to the policy frameworks that existed in 2020. 27 This includes, for example, carbon taxes in place as of 2020 in the EU. Of this, $3 trillion could come from current investment simply rising in line with baseline growth (assuming that spending levels stay consistent as a share of GDP). The remaining $12 trillion could occur with accelerated economic growth and, more importantly, with technological advances on the horizon making low-emissions alternatives more cost competitive.

$10 trillion in low-emissions spending could become viable for businesses and consumers in this decade.

While some of this $15 trillion step-up would continue to be financed or subsidized by public budgets, the majority could consist of “in the money” spending by the private sector. Combined with continued spending at 2020 levels, some $10 trillion in low-emissions spending could become viable for private actors by 2030.

Where exactly are these “in the money” opportunities? The power and mobility sectors in China, Europe, India, and the United States collectively make up about 70 percent of this category—and these are precisely the areas with the biggest needs for investment. Action is already building in these areas. With new supply chains turning out batteries and a wider array of models hitting the market, electric vehicles are poised to become more affordable. Meanwhile, technology advances and continued cost reductions could create almost $700 billion of new viable investment opportunities across solar and wind generation in these regions.

The extent to which growth, innovation, and continued current policies could close the combined gaps varies by region

Market forces—the combination of higher productivity-driven growth, business innovation, and technology advances—plus the continuation of current policies and public commitments could move the world much further on both fronts. At the global level, these forces could close roughly half of the combined empowerment and net-zero investment gaps (Exhibit 7). By our estimates, just under one extra percentage point of growth reduces the unfilled empowerment gap by more than one percentage point of GDP. 28 While economic growth increases the low-emissions spending need to reach a net-zero trajectory, the unfilled gap remains largely constant as a share of GDP.

Image description: Two waterfall-style bar charts plot breakdowns of the $37 trillion inclusion spending gap and the $41 trillion sustainability gap. About two-thirds of the inclusion gap is covered by market-led opportunities and continued current policies, leaving $13 trillion unfilled. About one-third of the sustainability gap is covered, leaving $26 trillion unfilled. End of image description.

But growth and business-led innovation have uneven potential across countries (Exhibit 8).

By 2030, these two forces could fill roughly 55 to 85 percent of the empowerment gap in high-income regions. Across the rest of the world, the picture varies widely. The greatest potential lift could occur in India and China. Accelerated growth and business innovation could erase more than 90 percent of the empowerment gaps in both countries, lifting about 700 million people in India and over 730 million in China above the threshold by 2030. But these two forces may have lower impact by 2030 in many other developing countries.

For net zero, the potential impact of growth is less, as discussed previously. Growth and business-led innovation plus continued current policies could together fill about 30 to 60 percent of the gap, with economies in Asia (apart from India) at the lower end.

Two sets of horizontal bar charts show a regional breakdown of the potential of baseline growth and business-led innovation to fill gaps. The left side shows the empowerment gap, and the right side shows the net-zero investment gap. The bars are split into three categories: baseline growth, business-led innovation, and unfilled gap. The charts show that the portion of the gap that can be filled varies by region.

The residual gaps raise fundamental questions

After accounting for growth, business innovation, and continued current policies, the unfilled gaps amount to $40 trillion across both empowerment and net zero. This is the global total, cumulative through the decade, with roughly $13 trillion on the empowerment side and $26 trillion for net-zero investments through 2030. Each country and region has a unique share of this residual gap, depending on its current development challenges, its growth prospects, and how carbon-intensive its economy currently is (Exhibit 9). Developing countries account for nearly two-thirds of the residual gap globally.

Two treemap charts plot regional breakdowns of the two unfilled spending gaps over 2021–30. On the left is the $13.4 trillion empowerment gap, with the segment for Sub-Saharan Africa filling about half of the chart, with $7.2 trillion. On the right is the $26.2 trillion net-zero investment gap, with the largest segments including China at $5.8 trillion and the U.S. at $4.5 trillion.

Different outcomes are possible depending on the extent of growth, innovation, and public-private action

The empowerment opportunity for africa.

This report builds on NGFS scenarios for its net-zero analyses. We therefore use NGFS regional groupings for our economic empowerment analysis to make the two goals more comparable. Yet the African continent is bigger and more diverse than the focus on sub-Saharan countries implies.

Looking at the entirety of Africa adds in other major economies, including Algeria, Egypt, and Morocco. While 90 percent of the population in sub-Saharan Africa alone is below the empowerment line, that share shrinks to 85 percent for the entire continent. Africa’s gap to reach full empowerment is equivalent to 33 percent of GDP, down from 45 percent of regional GDP for sub-Saharan Africa alone.

Yet economic empowerment is not a binary condition, and what matters is progress along the continuum. Some 70 percent of the entire continent’s population was below 50 percent of full empowerment in 2020. Getting them above this intermediate benchmark would be a major stride in development. This would require a boost in spending power equivalent to 11 percent of GDP, roughly in line with India’s full empowerment gap—and significant progress is achievable through faster growth and business-led innovation.

Just as the story changes while zooming out to the full continent, it also becomes more nuanced when zooming in to individual countries. Beneath the regional aggregates are some economies that have stronger recent growth momentum and others with large populations closer to full empowerment. In Algeria, Botswana, Egypt, and Morocco, for example, market-led opportunities could close at least 70 percent of the full empowerment gaps—and get the entirety of these countries’ populations above the 50 percent benchmark. Meanwhile, countries such as Benin, Cote d’Ivoire, Ghana, Kenya, Senegal, and Tanzania could rely on market forces to get more than half of their populations to 50 percent of full empowerment.

In our scenario of accelerated growth, some 770 million people across the continent could be above 50 percent of the empowerment line by 2030—almost doubling the number in 2020 (exhibit). At the same time, the number of people living in extreme poverty would drop by just under 270 million over the decade. As noted in recent MGI research, African economies can accelerate these outcomes through digitization, talent development, regional collaboration, and industry champions. 1 Reimagining economic growth in Africa: Turning diversity into opportunity , McKinsey Global Institute, June 2023. These strategies could attract more international investment, creating self-sustaining momentum that transforms millions of lives.

A bar chart plots Africa’s population of 1.34 billion in 2020 and projected 1.65 billion in 2030, with segments showing different spending levels as a percentage of the empowerment line. In 2020, 400 million, or 30% of the population, are above 50% of the empowerment line, and in 2030, in a scenario of accelerated growth and business-led innovation, 770 million, or 47% of the population, are above 50% of the empowerment line.

The choices societies make about prioritizing these aspirations and putting resources into them can produce a broad range of outcomes.

If economic growth stays at the baseline, but innovation does not bring down the cost of low-emissions technologies as much as expected and no additional commitments are made, some 830 million people would cross the empowerment line by 2030. But some 3.9 billion would remain below it, and the world would be on a trajectory for over 3.0°C of warming in 2100. 29 Drawing on expected warming under the NGFS Current Policies scenario as of 2100.

Exhibit 10 shows the degrees of progress that could be achieved in line with higher growth, innovation, and commitments. While these are global results, the trade-offs differ across countries and regions.

Image description: In the first of 5 slides, 6 square matrices are arranged in 2 rows and 3 columns to show how gaps can be filled in different scenarios. The top row is for the $37 trillion empowerment gap, and the bottom row is for the $41 trillion net-zero investment gap. Each of the columns represents a scenario. The first scenario is for accelerated growth and innovation with continued policies. The second scenario shows societal commitment to filling the net-zero investment gap only. The third shows societal commitments toward filling both gaps. End of image description.

Image description: The second slide fills in some squares in each of the matrices to show how baseline growth can cover one-third of the $37 trillion empowerment gap and only about $3 trillion of the $41 trillion net-zero investment gap. End of image description.

Image description: The third slide fills in more squares to show how accelerated growth and business-led innovation can cover about two-thirds of the empowerment gap and one-third of the net-zero investment gap. End of image description.

Image description: The fourth slide fills in more squares to show how higher societal commitments can close the gaps. End of image description.

Image description: On the fifth slide, bullet points of statistics at the bottom of each scenario column show that higher societal commitments could put the world on a path to prevent an extra 1.5°C of warming and bring an additional 2.6 billion people, the rest of the world's population, over the empowerment line. End of image description.

• Innovation-led accelerated growth. Countries could choose to rely solely on maximizing what market forces can do. With higher economic growth and innovation delivering the anticipated productivity improvements and reductions in the price of low-emissions technologies, 2.1 billion people could move above the empowerment threshold, but the world would be on a 3.0°C warming path. This would produce much more progress, especially on the empowerment side, than the current trajectory, although it would be far from closing the gaps.
• Commitment to partially address either gap. Assuming high growth and innovation, societies could choose to address one of the residual gaps, leaving the other to be addressed by market forces alone. The exhibit illustrates societies choosing to tackle net zero completely but not empowerment. The choice is not binary, of course. Many combinations could yield partial progress on both challenges in tandem.
• Commitment to fully close both gaps. In this scenario, the global population would be fully empowered with a higher standard of living, and the world would be on track to achieve net zero by mid-century, hopefully limiting warming to 1.5°C by 2100. This would take a best-case scenario of global growth and innovation along with commitments that wholly—and effectively—address the combined $40 trillion residual gap over the decade.

The important assumption in the final two scenarios is that public commitments on such a scale would spur additional private activity and investment. However, it is possible that such extensive commitments could distort the baseline economy.

These scenarios lead us to three questions about how additional commitments could theoretically close the last-mile gaps as well as the implications for countries that lack the economic resources.

Question 1: How could societies get closer to full empowerment beyond what current market forces can do?

The options for closing the residual $13 trillion economic gap for universal empowerment involve delivering essential goods and services more affordably and effectively, improving work arrangements and pay, and injecting more direct support. As a thought experiment, we quantify some of these avenues, cautioning that the effects of intervention on this scale are not known (Exhibit 11).

Making housing, healthcare, education, and nutrition more affordable—and raising the bar for quality—can yield not only financial savings but greater well-being and human potential.

First, beyond incomes, one of the biggest factors determining empowerment is the price of essential goods and services. Multiple efficiencies could bring down these costs. Benchmarking against the productivity gains and outcome improvements that some countries have achieved in past decades, we estimate the potential to improve capacity and productivity in housing, healthcare, education, and nutrition. If these are passed on to consumers, they could yield some $3 trillion of benefits to those below the empowerment line (cumulatively through 2030). In effect, this would lower the empowerment threshold. In places where the public sector provides essential services, looking for operational efficiencies and raising the bar for quality can ensure that public funds are well spent. Beyond the financial savings, these could yield immense benefits in terms of well-being and human potential.

Image description: A waterfall-style bar chart plots a breakdown of a funding scenario that could potentially close the $37 trillion empowerment gap. It shows $20 trillion covered by private business actions under current market frameworks, $14 trillion of public support, and the rest mostly covered by public and private action to increase the affordability of essentials, including education, healthcare, housing, and food. End of image description.

For instance, we estimate that improved construction productivity could lower housing expenditures by 11 percent globally if all countries emulated their best-performing peers and these gains reached consumers. Health outcomes (expressed in healthy life expectancies) could improve by 36 percent globally, even keeping current levels of healthcare spending constant, if each country matched its best-performing peer over the next decade. Globally, we find an opportunity to improve learning outcomes (expressed as both years of schooling and test performance) by 42 percent, with the greatest potential gains in low- and middle-income countries.

Policies and incentives could spur more business attention and innovation in the affordable segments of the housing, healthcare, food, and education markets. In housing, for example, local governments can change regulations related to land use, density, and permitting to lower costs for private developers. They can also require a percentage of affordable units in larger multifamily projects or offer concessional finance to buyers and developers of affordable housing.

On a different front, more labor-friendly policies and business decisions to offer higher wages or benefits could address labor’s declining share of national incomes, particularly in high-income economies. This could occur alongside structural factors we have accounted for as part of economic growth, such as changing employment mixes.

For the remaining unfilled $10 trillion global gap, one option could be well-administered transfers to households. While better-paying jobs are the biggest driver of higher living standards, transfers can be targeted to those who do not benefit from these opportunities, especially the very poorest, those living in remote communities, children, the elderly, and people unable to work. In many places, there is room to make subsidy programs more transparent. Digital tools can spot leakages while streamlining eligibility processes and delivering benefits more efficiently. In addition, governments, philanthropies, social investors, development finance institutions, and multilateral agencies could consider increased direct funding for affordable housing, health, and quality education.

A $10 trillion incremental commitment to achieve full empowerment would be equivalent to about 3 percent of total global government budgets over the decade (assuming both accelerated growth and government spending held constant at its current share of GDP). But the regional differences are stark. The amount needed to close the gap in the United States, for example, equals about 1 percent of government spending, while in sub-Saharan Africa, it would take 1.3 times the region’s government spending. Even if the region’s gap could be closed through international transfers, uncertainties remain about the potential size and duration of such aid. Large capital flows could affect prices, labor markets, savings, and ultimately growth.

Question 2: What would it take to get on a true net-zero trajectory beyond what current market forces can do?

After accounting for market forces, technological advances, and the continuation of current policies, the residual unfilled net-zero investment gap is $26 trillion, cumulative through the decade. This is equivalent to 3 percent of global GDP annually.

Increased public commitments for net zero could activate even more private capital and create faster learning effects that bring down the costs of low-emissions technologies.

Fully addressing this unfilled economic gap would require a combined public–private effort. Higher public commitments could activate even more private capital and create even faster learning effects (that is, the lowering of costs as technologies mature and are deployed widely). For example, the vast majority of wind and solar will come on stream only if there is sufficient investment in transmission and distribution, which is largely a public-sector effort today in many parts of the world. All of this rests on the unproven assumption that these shifts do not damage the base economy.

We present a scenario illustrating how such commitments could play out if countries choose to make them. Beyond the levels of public funding suggested by growth and the continuation of current policies, we estimate that an injection of just under $10 trillion in public funding could potentially unlock almost $17 trillion in additional positive impact collectively to 2030. Public support could take the form of concessional finance (that is, lending below market rates), subsidies, and projects undertaken by state-owned enterprises and development finance institutions.

One-quarter of the total $55 trillion needed through 2030 could be private in-the-money spending (plus avoided spending), up from 10 percent in 2020. All told, some $31 trillion could potentially come from private actors (Exhibit 12), including what is expected to become cost competitive as well as what could be unlocked through additional policies and public finance. Public support alone makes up some 36 percent of the total in this scenario, down from half in 2020.

Image description: A waterfall-style bar chart plots a breakdown of the global spending needed to fill the $41 trillion net-zero investment gap. It shows $13 trillion coming from public support, $16 trillion from private sources influenced by that public support, $9 trillion from private consumer finance and commercial finance sources, and $4 trillion counted as avoided spending from accelerated learning. End of image description.

About 70 percent of crowded-in private spending could occur in the building and mobility sectors, based on our bottom-up modeling. Public support would be critical for building decarbonization, since heat pumps, a key technology, are not yet cost competitive relative to gas boilers. Similarly, there are significant opportunities in mobility, but public-sector support may still be needed, especially for heavy-duty electric vehicles , which are expected to take longer than battery electric passenger vehicles (BEVs) to become cost competitive. 30 “ Preparing the world for zero-emission trucks ,” McKinsey & Company, November 2022.

Such levels of public and private action could also yield up to $4 trillion in avoided investment, thanks to additional R&D, economies of scale, and learning by doing.

As with the empowerment gap, the $10 trillion of public commitment to be on track for net zero represents about 3 percent of total global government budgets over the decade (assuming both accelerated growth and government spending remain constant as a share of GDP). This ranges from less than 1 percent of current government budgets in the European Union and United Kingdom to 14 percent in India. The consequences of scaling up public commitments and international capital flows to this extent would be uncharted territory.

Even if the residual gap for net zero is not fully addressed, pursuing everything that market forces can do would already be a tremendous ramp-up in spending and progress. At this scale, and with this additional momentum, the environment becomes more fertile for breakthroughs and societal shifts that we cannot foresee today. This argues for a continued focus on growth and innovation.

Question 3: Will societies have the capacity and willingness for higher public and private commitments?

If governments choose to address some or all of the residual gaps, they could explore making their spending more efficient, reallocating existing spending, issuing new debt, or raising taxes. Capital could also come from philanthropies, multilateral agencies, or social investors.

Carbon pricing can play a role in spurring the switch away from high-carbon assets. We model how the need for public support to achieve both empowerment and net zero would change if carbon taxes, rather than subsidies, were the primary vehicle to shift incentives toward low-emissions spending. 31 We use carbon prices estimated by NGFS that range from about $78 per ton of emissions in emerging economies like India to about $300 in the United States. We found that they reduce the need for additional public support to reach net zero by 0.4 percentage point of GDP. At the same time, the residual empowerment gap would rise by 0.2 percentage point of GDP (on average annually) unless this effect is mitigated by revenue recycling. 32 Based on changes in private consumption seen in the National Institute of Economic and Social Research’s NiGEM model when shifting from a no-transition, no-physical-risk baseline to a net-zero scenario, looking forward to 2030. NiGEM incorporates NGFS carbon prices as taxes, as well as NGFS energy prices.

Most high-income countries theoretically have the resources to make higher commitments if they choose to, although how much debt countries can carry is the subject of ongoing debate. 33 See, for example, Christina D. Romer and David H. Romer, Fiscal space and the aftermath of financial crises: How it matters and why , Brookings Papers on Economic Activity, Spring 2019; and Oliver Blanchard, “Public debt and low interest rates,” American Economic Review , volume 109, number 4, April 2019. Yet the choice to aim for full empowerment, net zero, or both would involve difficult trade-offs with other national priorities.

Sustainability and inclusion are global projects, with ramifications that do not stop at national borders.

Achieving full empowerment and a net-zero trajectory in the current decade appears more challenging for lower- and middle-income countries. Allocating large amounts to the net-zero transition could eat into existing social welfare programs, potentially worsening the empowerment gap. India’s need for incremental public support to get on a net-zero pathway is more than 50 percent higher than the share of GDP that currently goes to social protection spending, for example. Debt, too, is problematic for the developing world: the IMF estimates that 60 percent of low-income countries are already in debt distress or approaching it. 34 “Debt dynamics,” in Crisis upon crisis: IMF annual report 2022 , International Monetary Fund, September 2022. See also The human cost of inaction: Poverty, social protection and debt servicing, 2020–2023 , UNDO Global Policy Network Brief, July 2023.

Yet sustainability and inclusion are global projects, with ramifications that do not stop at national borders. For context, if high-income countries were to take on the combined residual gaps in the entire world, it would require an amount equivalent to about 3.5 percent of their GDP on an average annual basis (up from less than 1 percent of GDP to bridge only their own residual gaps). Even if high-income societies were willing to bear that cost, the world would need a mix of mechanisms for cross-border flows that could include international aid, cross-border debt, assistance from multilateral institutions, and debt relief (including creative debt-for-nature or debt-for-climate swaps). New financial vehicles might need to be designed.

We are reaching a fork in the road

We undertook this exercise to show what is theoretically possible and inform the debate. Regardless of whether countries decide to increase public commitments, this research leads to two important takeaways.

The importance of productivity-driven growth cannot be overstated

Faster growth propels inclusion. Almost 40 percent of the empowerment gap can be closed by baseline growth—and, as noted earlier, just under one extra percentage point of growth reduces the unfilled empowerment gap by more than one percentage point of GDP.

Additionally, growth can give governments more fiscal flexibility. The incremental GDP growth from higher productivity would allow for more than $30 trillion in additional public debt to be incurred globally without raising the 2020 global public debt–to-GDP ratio. At a global level, and specifically for high-income regions, this additional debt capacity exceeds the incremental public support needed to fill the empowerment and net-zero investment gaps. It is a question of whether or not those countries choose to assume that kind of debt, and where to allocate it.

Visionary agendas are more likely to be pursued when the pie is growing and put aside when it is shrinking. 35 Benjamin M. Friedman, The moral consequences of economic growth , Knopf, 2005. While growth can’t overcome every structural challenge, it can create space for new solutions to take root. Although growth in its current form has increased both emissions and inequality in the past, businesses, institutions, and governments can address these externalities more directly.

Higher growth and innovation could bring 600 million more people out of poverty, taking steps on a longer journey toward empowerment.

For developing economies, the prospects for more people to exit poverty are inextricably linked to their ability to grow. These countries would need to double down on productivity, skill development, and technological leapfrogging. 36 See, for example, Reimagining growth in Africa: Turning diversity into opportunity , McKinsey Global Institute, June 2023. They may also need institutional reforms, from clearer legal frameworks for property rights to stronger oversight that prevents leakages of public spending. 37 Realizing property rights , Hernando de Soto and Francis Cheneval, eds., Frank/Wynkin de Worde, 2006. New collaborations may be needed to integrate low-income countries more fully into global flows of trade, finance, technology, and knowledge.

The upside is compelling: higher growth and innovation could lead to some 600 million people moving out of poverty, taking significant steps on their journey toward full economic empowerment. Even in the absence of greater commitments and international transfers, growth and the actions of businesses can unlock real progress that changes lives.

Innovation at scale is critical

Relentlessly focusing on technology development is one of the keys to getting to net zero and lowering the price tag associated with doing so. The significant recent drops in the costs of wind and solar power offer reason for hope. R&D, learning by doing, and scaling up eventually drive costs down. The faster this happens, the lower the risk of households facing higher energy costs.

On the inclusion side, innovation and technology adoption generate demand for higher skills and better jobs. Innovation is also needed to tap efficiency-boosting opportunities and bring down the costs (and prices) of basic needs, from housing and food to education and healthcare.

Innovation is also needed in a broader sense. Lifting minimum living standards and containing climate change would involve sweeping transformations, requiring bold approaches in policy, finance, technology, and industry. The possibilities could include creating new multilateral financing vehicles; integrating low-income countries into global flows of capital and trade in a way that lifts local communities and small businesses; developing sustainable cities with affordable housing; strengthening education and healthcare systems worldwide; and designing effective carbon markets, including incentives for countries to preserve biodiversity and critical carbon sinks.

Progress toward empowerment and net zero would depend on private actors, governments, and NGOs and nonprofits combining their capabilities and expertise—and thinking without limits about how they can contribute to meeting this moment. Regardless of whether countries fully close the gaps, they have real opportunities to build a more stable, prosperous future.

We recognize the scope of these challenges as well as the political realities and the gravitational pull of the status quo. Financing is only one aspect of what would need to be done; achieving consensus and moving toward implementation would be incredibly complex. Countries that decide to take on these generational transformations would need an entirely different magnitude of public–private cooperation. The size of the challenge is not a reason for resignation; it is a call for everyone to roll up their sleeves on what can be done today. Every incremental step forward advances the continuum of progress.

The executive summary of this report was originally published in August 2023. This page has since been updated with the full report download.

Anu Madgavkar is a partner of the McKinsey Global Institute, based in in New Jersey; Sven Smit , based in Amsterdam, chairs MGI. Mekala Krishnan is a partner with MGI, where Kevin Russell and Rebecca J. Anderson are senior fellows. Lola Woetzel and Kweilin Ellingrud are MGI directors, based in Shanghai and Minneapolis, respectively. Tracy Francis , a senior partner in the Sao Paolo office, leads McKinsey’s ESG initiatives.

This report was edited by Lisa Renaud, an MGI executive editor in Los Angeles.

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• Published: 27 October 2022

Impact of microfinance on women’s economic empowerment

• Belay Mengstie   ORCID: orcid.org/0000-0002-4330-7083 1  

Journal of Innovation and Entrepreneurship volume  11 , Article number:  55 ( 2022 ) Cite this article

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Women’s economic empowerment a strategy aimed at enabling women in decision-making, increment in income and asset ownership. The main aim of the study is to examine the impact of microfinance on women’s economic empowerment. Data were derived from a questionnaire of a sample of 346 women clients of microfinance. Multiple regression and paired sampled t -test data analysis techniques were used in the study. Multiple linear regression result revealed that age, marital status, education level, credit amount, and number of training have significant effect on women’s economic empowerment. However, previous business experience did not have significant impact on women’s economic empowerment. Paired sampled t -test result revealed that there is significant mean difference before and after microfinance service in terms of income, asset, and saving. Microfinance has significant positive effect on women’s economic empowerment by improving women’s independent income, increasing asset possession levels, and improved monthly saving amount. Moreover, the study proved that microfinance has a positive impact on women’s entrepreneurship development and business exposure.

Introduction

Microfinance institutions have been considered as important development program in Ethiopia for the last 20 years. The legal foundation for the microfinance movement and expansion in Ethiopia was started after 1996 proclamation. In the development of microfinance, this proclamation considered as a bench mark to start and develop microfinance in the country. Women’s participation in microfinance is growing gradually. All microfinance industries have a shared vision of poverty alleviation and women’s economic development.

Microfinance institutions are effective instruments for providing basic services like saving, affordable credit, and skill training (Haimanot, 2007 ; Mahfuz et al., 2017 ; Misrak, 2012 ). Microfinance institutions are important economic development agents intended to benefit women and lower income people (Cicchiello et al., 2021 ; Duflo, 2012 ; Meressa, 2020 ). Microfinance institution plays a great role in different countries in alleviating women’s economic problem, creating self-employment opportunities, and developing businesses for women entrepreneurs. Women are benefited from participating in microfinance program. Women’s participation in microfinance credit program increased their economic position, exercise economic independence, and improvement in their business leadership skills (Addai, 2017 ; Haimanot, 2007 ). However, Women’s participation in economic activities is very low in Ethiopia (Dawit, 2014 ; Solomon et al., 2019 ; Zelalem & Chalchissa, 2014 ).

Women represent the main economic force in different developing countries. As economies become more and more information-driven, the issues of women’s access to and the use of information and communication technologies are growing in importance for developing economies (Michota, 2013 ). Economic empowerment improves women’s opportunity to resources and non-financial resources. Moreover, it creates good opportunity for skill development and market information (Addai, 2017 ; Khandre, 2015 ). Women’s economic participation is base to exercise women’s right and helping them develop decision-making role over their household and influence in their community. Women’s empowerment is creating equitable societies (Shaheen et al., 2013 ).

There are controversies on impact of microfinance on women’s economic empowerment. Odell ( 2010 ) study identified the difficultly of making generalized conclusions taking to consideration the heterogeneity of microfinance interventions. Stewart et al. ( 2010 ) study in Africa found little impact of microfinance on income of beneficiaries. According to Rathiranee and Semasinghe ( 2015 ) study, there is a weak but significant impact on women empowerment due to microfinance service provision in Sri Lanka. Addai ( 2017 ) and Mohammad et al. ( 2017 ) study clearly indicated that there is positive effect of microfinance on women’s economic empowerment in Ghana and Bangladesh, respectively. Different researchers confirmed the significance effect of microfinance (Kato & Kratzer, 2013 ; Loomba, 2017 ; Misrak, 2012 ).

There are many published studies linking microfinance to women’s empowerment. The studies mainly concerned on microfinance role on, poverty alleviation, and socio-economic development through microfinance. Particularly in Ethiopia, the concept of microfinance is at its infancy level that needs further investigation. Therefore, this study is focused to examine how microfinance service has impact on women’s economic empowerment taking into account Amhara credit and saving institution of Ethiopia.

Literature review

Microfinance development in ethiopia.

Microfinance program in Ethiopia launched during 1960s as semi-formal microfinance service with credit and saving cooperatives. Semi-formal microfinance created assets to undertake different economic activities, improved household asset building, and manage risks and bad events. Different non-government organizations in Ethiopia have introduced saving and credit cooperatives aimed at creating self-employment and generating income for the betterment of society affected by drought in the country (Befekadu & Berhanu, 2000 ).

Until the beginning of 1990s financial sources to finance for urban and rural poor and small enterprise in Ethiopia were informal and semi-formal sources of finance like families, friends and moneylenders (Itana et al., 2004 ). They further noted that, starting in the mid-1990s after known drought in 1984, Non-Government Organizations introduced the idea of saving and credit among poor section of the society as a means for rehabilitation and development. Later, government programs undertaken in collaboration with international financial institution even though both types of programs were operated in unorganized and scatter manner and lacked sustainability until the year 1996.

Formal microfinance in Ethiopia was developed and flourished recently with fast growth rate. Dawit ( 2014 ) noted that Ethiopian owned microfinances were established to provide different services in rural households, promote saving habit and credit accessibility with strong focus on sustainability. Formal microfinance was strengthened in 1990 when an urban micro-financing scheme was initiated at national level with agreement signed between International Development and Ethiopian Government (Befekadu & Berhanu, 2000 ). After Ethiopian people’s democratic front, present Ethiopian government, took over power in 1991, considerable attempt has been made to liberalize the financial sector. As result, Proclamation No. 84/94 was declared, to allow private and domestic investors to engage in insurance and banking business, which were previously monopolized by the government. Another Proclamation 40/1996 was issued to solve financial services delivery of the to poor section of the society (Dawit, 2014 ). Therefore, the legal foundation for the microfinance industry was laid in the country with Proclamation 40/1996 on supervision and licensing of MFIs in the year 1996. This proclamation act as a framework to start, expands, and develops microfinance in Ethiopia.

Agricultural Development which Leads to Industrialization strategy considered rural finance as an important tool for agriculture and food security. As a result, the Ethiopian government reconsider microfinance operational modality in order to facilitate microfinance service delivery and outreach. Currently, in Ethiopia there are 38 microfinance institutions licensed to operate regional states and throughout the country (Solomon et al., 2019 ).

Microfinance and women’s economic empowerment

Microfinance institutions are considered as society based strategy to give different finance related resources for the poor and disadvantage section of the society in order to improve the life of clients (SEEP, 2006 ). Microfinance sector plays vital role in supporting the community in their transition towards development of the country and peace building. Microfinance industry support local economic development by providing the needed financial and non-financial services for small enterprise development. According to Kamberidou ( 2013 ), women are naturally strong in using financial and non-financial resources in building strong relationships, and creating a culture of collaboration. Some researchers consider microfinance as survival strategy in time of disaster and sustainable peace development (Dawit, 2014 ; Khanday et al., 2015 ).

In Ethiopia context Supervision and Licensing of Microfinance Institution Proclamation No. 626/2009 defines microfinance as “financial services provision including credit, savings, drawing, money transfer services and other related services.” This microfinance business definition does not confine microfinance institution to only credit. In this article, microfinance is defined as financial services provision to the low-income people and small enterprises that lack access to formal financial institutions. Microfinance is not limited to borrowing activities but also includes savings, transfer facilities, training, insurance and others.

Microfinance sector empowers women economically by providing working capital and support women in order to get constant income to their families (Tandon, 2016 ). According to Mudakappa ( 2014 ) many women were clients of microfinance in different countries. Khanday et al. ( 2015 ) believed that development of women economically generated self-esteem and respect for women microfinance beneficiaries. Microfinance provides finance to women who helped them to start new business and expand the existing one. Microfinance institution service of credit and training gives women confidence and helped them to be more active in participating in the household and community affairs.

Microfinance institution service empowers women economically by providing self-employment opportunity, improving labor productivity, and increasing wage rate (UN, 2011 ). Microfinance impact mostly measured using variation in independent income, employment rate, and household consumption on a sustained basis. Microfinance institution service impact could also be directly known by considering increment in outcomes such as literacy rate, fertility rate, and housing pattern. Changes in income and self-employment opportunity among enterprise owners benefit community at large (Ertu & Tilahun, 2022 ).

Microfinance service helped the poor section of the society to protect from different risks and diversify business, to increase sources of income which is considered as important instrument in the reduction of poverty and women’s economic empowerment (Addai, 2017 ; Littlefield et al., 2013 ; UN, 2012 ). Many researchers result showed that income played significant role on consumption, capital formation and other indicators of human well-being. When the income level increases access to balanced food, access to medical services and children education are positively affected (Solomon et al., 2019 ). Moreover, microfinance institutions provide services which seek to minimize the risk from adverse effects for the poor society. For example, savings programs are operating to help microfinance institution clients to gradually accumulate working capital for the times of crises and when there is capital need for different purposes. Efficient microfinance program could also reduce the rate of unemployment, and diversify sources of income. Thus, Women’s economic empowerment as result of microfinance service could be achieved.

Conceptual framework of the study

Conceptual framework for this study is developed based on the evidence available in literature. More than 40 researches reviewed to develop this conceptual frame work. Based on the literature review, the researcher has developed conceptual framework to show the relationship between independent variables, microfinance service, and dependent variable women’s economic empowerment.

According to SEEP ( 2006 ), impact assessment can be used to improve services, increase impact on poverty and microfinance institution efficiency, to promote good client service and accountability, and provide accountability to donors and other external stakeholders. Ledgerwood ( 1999 ) divides impact of microfinance into three categories namely economic impacts, socio political or cultural impacts, and personal or psychological impact. Women’s economic empowerment can be influenced by both women’s demographic characteristics and access to financial resources from microfinance institutions. Demographic factors are expected to influence access to microfinance services. If women have access to these services, they will be able to participate in income-generating activities whether to start a new business or improve the exiting one. The result expected is empowering economically which is manifested through ownership in income-generating activities, ownership of assets, increased income, savings, and decision-making (Selvaraj, 2016 ).

Microfinance service (access to credit and training) and demographic variables (age, marital status, and education) leads to women economic empowerment. Addai ( 2017 ) study clearly showed that microfinance service has impact on women’s economic empowerment but the relationship is mainly take into account marital status, age and educational of the women. Rehman et al. ( 2015 ) study found that education and age have impact on women’s economic development of women beneficiaries. The main independent variables which microfinance institution provides are access to credit and training which enable women to start their own economic activities or invest more in existing activities and earn an additional income. According to Dawit ( 2014 ) and Rehman et al. ( 2015 ) increased participation in economic activities raises women’s independent incomes and savings, increases control of their own and family income, and other household resources which are basis for women’s economic empowerment.

Data and methodology

The research was conducted in Ethiopia in the year 2019. From the literature review, 35 items that would indicate women’s income, asset, saving and decision-making were identified. A questionnaire consisting of both open- and a close-ended question was used to obtain information from the selected samples of 346 respondents. The questionnaire basically focused on socio-demographic characteristics, economic empowerment and microfinance service.

The questionnaire was standardized which was used and approved; however, pilot study from selected respondents was conducted to refine the instrument. Questionnaire was tested on some respondents to make the instrument objective, suitable, relevant, to the problem and reliable. Issues raised by the respondents were corrected and questionnaires were refined. Besides, proper detection by senior research was also taken to ensure validity of the instrument. To check internal consistency, reliability test was conducted in with a sample of 30 clients and the Cronbach’s alpha coefficient for the instrument was checked. Cronbach’s alpha was computed and was 0.85 which is higher than 0.7. Therefore, the instrument was reliable and used for the study.

Multistage sampling technique was used in this research. Amhara region of Ethiopia has 10 zonal towns and the researcher took 3 zone administrations. The researchers Knowledge and experience was used for selecting the study area. In order to evenly distribute the sample in all geographical area; the existing administrative division were taken as a base for allocation of sample size. The numbers of respondents included in the study for each town were found by proportional method based on client’s number in each town using Amhara credit and saving institutions data. Finally, respondents enrolled in the study were drawn using simple random sampling technique. As a result, 51.5% of the respondents were from Dessie town administrations, 27% of the respondents were from Debrebirhan town administration and the remaining 21.5% were from Woldia town administrations.

Multiple linear regression analysis was used to determine whether the six independent variables, which are age, marital status, education level, previous business experience, credit amount and number of training have any significant effect towards economic empowerment of women. Moreover, paired sampled t -test was used to compare mean difference of income, saving, and asset before and after credit program. The econometrics model used is:

where CEEI = Cumulative Economic Empowerment Index; β 0  = constant; β 1 , β 2 , β 3 , β 4 , β 5 , β 6 , are the coefficients, AGE = age; MARS = marital status; EDUL = education level; BEP = business experience; TRAE = training exposure; CUML = commutative loan amount received; έ  = error term.

The dependent variable is cumulative economic empowerment index. Accordingly, for measuring economic empowerment of women in the study, a Cumulative Economic Empowerment Index (CEEI) was developed by summing up the individuals’ scores obtained from all the four indicators: asset, income, saving, and control over resource. Other researchers (Dawit, 2014 ; Kaur, 2012 ; Leonhäuser & Parveen, 2004 ; Mohammod, 2014 ; Parveen & Chaudhury, 2009 ; Simantini & Bimal, 2016 ) also used similar methods to measure women’s economic empowerment by developing a cumulative women’s economic empowerment index.

Results and discussion

This section of the study was conducted to contribute new information about the impact of microfinance through Amhara credit and saving institution on women economic empowerment. Multiple regression and paired sample t test were employed for data analysis.

Regression result

A further inspection on the regression coefficients of individual predictor variables revealed that age (Beta = 0.285, p  < 0.05), marital status (Beta = 0.125, p  < 0.05), level of education (Beta = 0.260, p  < 0.05), number of training (Beta = 0.224, p  < 0.05), credit amount (Beta = 0.225, p  < 0.05), are significant predictors of overall economic empowerment of women. This finding revealed that age, marital status, education level, number of training, credit amount have significant effect on the economic empowerment of women. Previous business experience (Beta = 0.064, p  > 0.05) variable was found to be insignificant on women economic empowerment in the study area (Table 1 ).

This finding revealed that age has significant impact on women economic empowerment. An increase in the age of the women raises maturity and their confidence to earn more money, which leads to increases in their overall economic status of women. This study found that age and women’s economic empowerment was associated positively, i.e., economic empowerment increase with the increases in age. According to Dawit ( 2014 ) explanation for the positive relationship was that women gain more experience and knowledge about different family matters, as women’s age increased to older age. This experience gives them better understanding to make decision about their life, family matters and in the community which leads them towards economic empowerment. The result of the study is consistent with previous researchers’ findings. For example, Rehman et al. ( 2015 ) study found that age has profound impact on women’s empowerment. Further, Ringkvist ( 2013 ) field study in Burma found that age seemingly has effect on the economic empowerment of women.

As indicated in above table marital status has significant positive impact on women’s economic empowerment. The married women were significantly more likely to be enjoying economic empowerment than unmarried, widowed and divorced women. The fulfillment of family requirement may be the main reason to help a married women to earn more and thereby improve the economic status. This finding is consistent with Addai ( 2017 ) finding, married women supported by her husband and her children. Conversely, Dawit ( 2014 ) study indicated that marital status has insignificant impact on women economic empowerment. His explanation of this result was that single women are the decision-maker of their household and they had more exposure to the external environments to participate in economic activities and improve their livelihood status, and have more freedom and self-esteem in controlling the resources that enhance their empowerment.

The regression results revealed that the educated clients of microfinance were better placed in terms of effective usage of credit and training service and enjoying economic empowerment. In other words, educated microfinance institution clients were found to have a positive impact on raising the economic status of women. Women’s level of education has direct relationship with control over resource. Moreover, women’s education level affect her decision on contraception, better employment opportunity and income which are the basic indicator of women economic development and empowerment. Addai ( 2017 ) study also shows that education level has significant impact on women’s economic empowerment. Parveen ( 2005 ) also argued that education improve the socio-economic condition of women, facilitates them to demand and protect their rights. Educated and literate women had greater access to information and knowledge that increased their chances for paid jobs, other benefits and resources.

Amount of credit has significant impact on women’s economic empowerment. The provision of credit service helps to improve the economic condition of women clients. As the amount loan increases, women use their credit on income-generating activities. They jointly use their income to start new business and expand the existing business. Members, who borrowed high amount of credit, secured higher economic empowerment index. Women who got more credit are more likely to achieve higher economic empowerment level than those who received low amount of credit. According to Miled et al. ( 2022 ) microfinance loans can lead to improve the relative income position of the poor in developing countries, albeit slowly. The finding of this study is similar with the research findings of Khan and Noreen ( 2012 ) study in Pakistan. They found that credit given by microfinance institution has significant impact on economic empowerment of women. This finding is consistent with Ringkvist ( 2013 ) and Loomba ( 2017 ) studies that the loan access by microfinance and its effective utilization have a positive impact on women’s economic empowerment.

As can be evidenced in the regression result number of training provided by microfinance has significant effect and leads to women economic empowerment. Women who attended training more likely grow their business skill and attitude than who did not attend training. Number of training significantly affects economic empowerment of women. Regular training is very important, especially so in the initial stage. Microfinance provides training on credit usage, how to start new business and how to expand business. This ensures that women remain committed to the their business and are able to plan in advance as regards the operation of their business. Majority of the respondents reported that all members of microfinance participated in training before they got credit (Beriso, 2021 ; Dincer, 2014 ; Leonhäuser, 2004 ; Rwanda Charles, 2016 ).

From the regression result, it can be concluded that microfinance program is helpful in empowering women economically. The education and training provided by microfinance program lead to the development of the overall personality of the program participants. The beneficiaries of the program have higher levels of employment, income and participation in household financial decision-making as compared to non-participants.

According Alene ( 2020 ) findings level of educational, entrepreneurial experience, access to training, finance, and information, government support, land ownership are significant in explaining women entrepreneurs. The results with respect to multiple regressions have presented several interesting observations. Different variables like age, education marital status, credit amount, number of training has significant relation to women’s economic empowerment. However, previous business experience has insignificant influence on the economic empowerment of women. Bera ( 2014 ) study concluded that participation in the microcredit program increases if the women are aged, educated, currently married, education levels of the heads of their families are high, and possessed more non land assets.

Paired t test result

In this study, paired t test used to compare mean difference of income, saving, and asset before and after credit program. Paired sample t test was conducted to determine the effect of microfinance on women’s asset after credit and before credit program, there was significant effect on asset, t (345) = 16.444, p  = 00. It can be observed from Table 2 that the mean asset difference after credit and before credit program is significant and microfinance program has positive impact on women asset ownership. The result of the study is similar with Temba ( 2016 ), a study conducted in Tanzania and showed that microfinance has able to managed to help women to avoid poverty and empower themselves economically by increasing their asset ownership when compared to before joining microfinance program.

As clearly shown in table above, there is significant mean difference in income after and before credit program t (345) = 23.750, p  = 00. Based on the result by pair t test statistics shown, there is significant mean difference after women get credit from microfinance and before credit program. Gangadhar and Malyadri ( 2015 ) and Wanjiku and Njiru ( 2016 ) study also supports the result of this study.

Paired sample t test was conducted to determine the effect of microfinance on women’s saving amount after credit and before credit program, there was significant effect on saving amount, t (345) = 19.532, p  = 00. Before joining microfinance most women did not save and few women save but the saving amount were small. The main reason for not saving is lack of additional income and lack of awareness about business and microfinance service. After credit program, almost all of women clients put their money in saving accounts maintained with microfinance institutions and commercial banks.

Conclusion and recommendation

Multiple regressions have presented several interesting observations. Different variables like age, education, marital status, credit amount, and number of training has significant relation to women’s economic empowerment. However, previous business experience has insignificant influence on the economic empowerment of women.

To know the use or non-use of microfinance on women’s asset, income, saving, pair t test was employed. The result of study concludes that the difference in asset, income, and saving amount were significant. Therefore, one can easily conclude that microfinance plays a great role on improving women asset, income, and saving. Different researchers also show the importance microfinance on women’s asset ownership improvement, income increment, saving amount improvement, and effective decision-making. Participation in microfinance program has led to greater level of women’s economic empowerment in terms of increase in economic status, knowledge of business activities, self-confidence on participating in income-generating activities, social and political awareness, developmental of organizational skills and mobility.

Recommendation

The findings of this study have important implications for interventions designed to enhance the economic empowerment status in Amhara region of Ethiopia. Since women’s economic empowerment depends on the level of income, saving amount, and asset ownership, attention should be given to those factors that influence women’s economic empowerment. Some factors were identified and the following recommendations are provided:

Amhara credit and saving institution services to women’s economic empowerment should be improved by working with town administration women’s affair office and other non-government organization which are working on women empowerment.

Most of the respondents considered the loan offered as very small which is not adequate to start business. In fact, the loan size increases as settled the loan in full and take another. However, the loan still falls short of the amount needed to start business. Therefore, Amhara credit and saving institution should adjust the amount of credit provided to women clients.

Majority of microfinance clients are dissatisfied with high interest rate. Therefore, Amhara credit and saving institution needs to revise its interest policy so as to attract more women clients and achieve women’s economic empowerment objective.

Availability of data and materials

All data are available on hand.

Abbreviations

Microfinance institutions

United Nations

Micro- and small enterprises

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Mengstie, B. Impact of microfinance on women’s economic empowerment. J Innov Entrep 11 , 55 (2022). https://doi.org/10.1186/s13731-022-00250-3

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Women empowerment and insecurity: firm-level evidence

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• Volume 56 , pages 43–53, ( 2021 )

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Women’s engagement in the formal economy is generally considered an important means to economic empowerment. In many developing countries, however, increasing female representation in politics, their greater engagement in paid work, and equality in educational attainment, are out of sync with the share of female workers in the formal sector's enterprises. This paper hypothesizes the role of insecurity in hampering empowerment that would otherwise accompany such developments. Exploiting the unique trio of a fragile security situation, a positive rate of macroeconomic expansion, and increasing female political representation in Pakistan, it finds a negative link between the ratio of permanent female workers and insecurity in a sample of 1600 formal sector firms. This link also finds support in a much larger sample of 71,000 firms from 71 different countries. The empirical analysis uses fractional logit regression to take care of the peculiar nature of the dependent variable; the issue of reverse causality is handled using instrumental variables.

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In contrast, the education-specific gender gap could be reduced to parity within the next 13 years (World Economic Forum 2017 ).

See for instance, Global Trends in Armed Conflict 1946–2017 Fig. 3, available at https://www.systemicpeace.org/conflicttrends.html# .

For example, in Pakistan, terrorists have the history of attacking female students and working women, e.g., Malala Yousafzai, Fiza Malik, Benazir Bhutto, Asma Jahangir, and many others. Malala was later awarded the Nobel Peace prize for her struggle for the education of young girls; Fiza Malik, a graduate from London Law School, was killed in terrorist attacks targeting lawyers and judges in Islamabad, 2014. Benazir Bhutto, two time prime minister and leader of the Pakistan People’s Party, was cold-bloodedly assassinated in December 2007 at the end of a public meeting.

The effect of political violence on firm-level decision making and internal organization of firm is explored in different studies, e.g., Junaid et al. ( 2018 ), Sayeed et al. ( 2019 ); Clercq et al. ( 2017 ). These studies use structured interview techniques to capture the perceptions of firm managers and employees in the face of security challenges.

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The statistical details of calculating the minimum precision level are given in Enterprise Surveys Sampling Methodology available at https://www.enterprisesurveys.org/en/methodology .

The definition of a terrorist incident in GTD has three features: (i) the act must be goal oriented; (ii) it communicates to a larger audience than the immediate victims; and (iii) it cannot be interpreted as a legitimate warfare.

“Permanent, full-time employees are defined as all paid employees that are contracted for a term of one or more fiscal years and/or have a guaranteed renewal of their employment contract and that work 8 or more hours per day,” Enterprise Surveys Indicator Descriptions (2015, p. 56).

For instance, Jetter and Stadelmann (2019 ) in their recent evidence on the consequences of terrorism recommended using a per capita form of terrorism.

The link between SecurityCost and FemEmp deserves further attention. If we replace SecurityCost with firm’s losses due to crime in our baseline model, we get a negative and significant coefficient. This strengthens our findings in the sense that weak law and order in general (and not its specific aspect) has negative consequences for female workers, although in our study the effect of terrorism is stronger than the effect of crime on female employment. In a related study, Islam ( 2014 ) finds that greater prosperity reduces firm’s losses due to crime, but this effect turns upside down for firms having female managers. Future researchers might explore how different aspects of weak law and order shape the economic outcomes for female workers. The author is thankful to the editor and the two anonymous referees for these valuable insights.

For instance, youths are more likely to be brainwashed and exploited by extremist leaders and organizations (Darden 2019 ).

Our focus on formal sector firms and full-time employment implies that the existence of people 15–19 years of age does not cause changes in FemEmp , although that group can increase competition in the part-time job market.

To increase the country and yearly coverage, we use GDP per capita instead of HDI as a measure of the level of economic development.

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Acknowledgements

The author is thankful to the editor, Charles Steindel, and two anonymous referees for their useful comments and suggestions. Useful comments from the participants of the 19th Jan Tinbergen European Peace Conference in Hague, Netherlands, and the participants of the 8th Asian Management Research Case Conference, UAE are also thankfully acknowledged. All the remaining errors belong to the author.

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Mazhar, U. Women empowerment and insecurity: firm-level evidence. Bus Econ 56 , 43–53 (2021). https://doi.org/10.1057/s11369-020-00187-z

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DOI : https://doi.org/10.1057/s11369-020-00187-z

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Morocco earthquake caused 0.24% economic loss, new research paper suggests

A l Haouz earthquake is expected to have moderate losses on the Moroccan economy, according to a recent research paper by think tank Policy Center for the New South.

In September 2023, a powerful earthquake struck several Moroccan provinces, tragically claiming the lives of nearly 3,000 people. A new research paper from the Policy Center for the New South (PCNS) assesses the economic impact of this catastrophe, suggesting moderate losses of around 0.24% of Morocco's entire economy.

The research investigates the financial weight of the earthquake and its recovery efforts. According to the April 30 survey, the earthquake will result in a 1.3% drop in Marrakech-Safi GRP and a 10.2% drop in economic activity in the Al-Haouz province, the areas most affected by the disaster.

«From these estimations, we can infer that the earthquake on September 8, 2023, was more of a human tragedy with moderate economic losses, especially at the macroeconomic level», wrote the researchers. They explained that this conclusion «is supported by the analysis of some high-frequency financial indicators, showing the resilient nature of the Moroccan economy following the natural disaster».

Relief plan analyzed

The research also examines the government's program, the «Program for Reconstruction and Rehabilitation of Affected Areas». This program allocates 120 billion MAD for short-term emergency aid to households, financial assistance for housing reconstruction, and medium to long-term infrastructure rebuilding and upgrading in the affected areas, as well as promoting economic activity in other High Atlas provinces.

Researchers assessed the two phases of the program. The first part focuses on immediate relief efforts, providing money to families for food and shelter and fixing roads and other infrastructure. The second part focuses on long-term improvements, including building better roads and schools, and creating jobs in farming and tourism.

«We assessed the economic impact of the recovery program through its two main pillars, while considering different hypotheses for the financing scheme of the second pillar, ranging from a new injection of money into the economy (debt) to a complete reallocation of investments from non-affected to affected areas», explained the source.

In their assessment, researchers suggest that based on «Morocco's commitment to maintaining macroeconomic stability, especially debt sustainability, and aligned with the Ministry of Finance's assessment that treasury debt is projected to decelerate starting from 2023, and to return to 2021 levels by 2025, the scenario that appears most probable for financing the second pillar (98 billion MAD) suggests a primary reliance on investment reallocation, rather than an increase in indebtedness».

Considering this scenario, the researchers believe the 120 billion MAD recovery plan will only have «a mild positive impact on growth at the national level», with an average increase of 0.03 percentage points over the period 2024-2028.

«For the High Atlas provinces, significant growth increases are expected due to the recovery plan, regardless of the financing scenario», signaled the researchers.

Finally, the researchers discuss a difficult choice the government faces : should they focus on helping the most affected areas catch up, even if it means taking money from wealthier areas? «Considering the policy intention to reduce regional disparities, and the necessity of assisting underdeveloped regions in catching up with the rest of the country's development stage, we might consider the need to prioritize equity over efficiency in such circumstances», the researchers concluded.

For the record, the Policy Center for the New South (PCNS) is a Moroccan think tank aiming to contribute to the improvement of economic and social public policies that challenge Morocco and the rest of Africa as integral parts of the global South.